Crypto Crashing Again After Binance ‘Rescues’ FTX From “Significant Liquidity Crunch”

Update (1300ET): After an initial spike of exuberance, crypto prices are tumbling once again as perhaps the systemic fragility of what CZ just did to SBF is too much for some.

Some are noting CZ’s more agrressive tone in the tweets: “Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop…”

Next time you hand over your company to your biggest competitor, at least make sure the LOI is not “non-binding”

— zerohedge (@zerohedge) November 8, 2022

Volatile it is with FTT trading with a $10 handle…

For context, this is the lowest FTT price since Jan 2021…

As @Seefelder noted on Twitter: “Binance has still around 1.5 Bln $FTT. Will CZ now sell them or is he just selling them now and then pulling out of the deal?“

This rollover has sparked carnage again in Bitcoin…

Ethereum also rallied up to pre-FTX crash levels before puking everything back…

Cory Clippsten, CEO of Swan Bitcoin, reached out to Bitcoin Magazine to comment on the evolving situation.

“Any centralized business that rehypothecates is by definition a confidence game,” Clippsten said.

“With a fair value of zero for all of the non-Bitcoin altcoins on their balance sheet, all it takes is a little bit of momentum for every trader in crypto to believe it could be a great trade to short all of their positions into oblivion.”

Clippsten went on to explain that any centralized company with “piles of altcoins on their balance sheet” are inherently playing this risky game making the participating companies “inherently fragile, susceptible to a Lehman-like collapse at any time.”

While the terms of the deal weren’t disclosed, Semafor reports that two of the people briefed on Bankman-Fried’s efforts said the firm was seeking more than $1 billion in financing before the Binance deal was sealed, with one adding that by midday Tuesday the hole appeared far deeper – closer to $5 billion to $6 billion.

Maybe that’s why HOOD is also crashing (another SBF investment) as liquidity needs trump everything…

*  *  *

Update (1115ET): It seems the pain this morning was enough to bring the two billionaires together as FTX’s Sam Bankman-Fried just tweeted that they have come to an agreement. The “strategic” agreement seems to be that Binance will buy FTX

1) Hey all: I have a few announcements to make.

Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).

— SBF (@SBF_FTX) November 8, 2022

SBF additionally clarified that:

2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that.

3) But the important thing is that customers are protected.

4) A *huge* thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry. CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem, and creating a freer economic world.

5) I know that there have been rumors in media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands.

Binance’s ‘CZ’ has also confirmed this in a tweet:

This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.

— CZ 🔶 Binance (@cz_binance) November 8, 2022

CZ added that: 

“There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop“

That has sent FTT higher on extremely heavy volume…

And Bitcoin is seeing a notable relief rally, back above $20k…

We have to say – that was masterfully played by Binance’s CZ…

And this is how you acquire your biggest competitor overnight after nearly bankrupting them. https://t.co/h9qRWBVGsl

— zerohedge (@zerohedge) November 8, 2022

*  *  *

The war between two of crypto’s richest men – Binance’s ‘CZ’ and FTX’s Sam Bankman-Fried (SBF) – escalated last night (as we detailed here) with the price of many major cryptocurrencies tumbling after FTX Token (FTT) broke down and anxiety over FTX’s reserves heated up.

We have previously reported on the surge in outflows from the giant exchange…

Quite the capital flight from FTX amidst Alameda worries. pic.twitter.com/kd8U6HDG0s

— Dylan LeClair 🟠 (@DylanLeClair_) November 7, 2022

Despite Bankman-Fried reassurances that:

“FTX is fine. Assets are fine… A competitor is trying to go after us with false rumors,… FTX has enough to cover all client holdings.”

…but, this morning, it appears the situation has got a lot more serious as The Block reports that FTX seems to have stopped processing withdrawal requests, according to on-chain data.

“It appears that FTX has stopped processing on-chain withdrawals from at least their main identified wallets on Ethereum, Solana and Tron,” said Steven Zheng, a research analyst at The Block.

“This is weird as there presumably are still people queueing up waiting for their withdrawals.”

The last outgoing transaction from FTX on the Ethereum blockchain was at 0637ET (it’s reportedly a similar story on Tron and Solana blockchains)…

Source: Etherscan

There have been lots of incoming transactions, but that is the last outgoing.

For now there is not much panic-selling reactions in Bitcoin or Solana for instance (which may suggest this is not as bad as it looks).

SBF has not responded yet.