The Tron protocol could be the next step and help solve the deepening crisis for FTX. Tron crypto token founder Justin Sun tweeted that he is ready to provide billions of dollars in aid to FTX, Bloomberg reported Friday.
The fourth-largest cryptocurrency exchange by trading volume, FTX.com will need to file for bankruptcy unless it can secure a cash injection to fill an $8 billion shortfall, Bloomberg reported today. via. FTX received over $6 billion in withdrawal requests in the 72 hours earlier this week. CEO Sam Bankman-Fried apologized for the volatility in a Twitter thread early Thursday.
X
Sorry SBF
“I’m sorry. That’s the biggest thing. I tried and should have done better,” Bankman-Fried tweeted. He gives a rough update on the position of FTX International. “FTX USERS IS AWESOME!” he added. FTX International currently has a higher total market value of assets and collateral than customer deposits, SBF said, “but that’s different from liquidity on delivery.”
He claimed responsibility for the “poor internal labeling of bank-related accounts”, which meant “basically I didn’t understand the user’s margin capabilities”. Previously, he assumed zero leverage with enough USD liquidity to provide 24x the average daily withdrawal. In fact, leverage stood at 1.7x, and when the FTX account started running, there was only enough liquidity to cover 80% of the $5 billion withdrawn on Sunday.
Bankman-Fried says “doing the right thing” is his top priority right now. And FTX is doing everything to increase liquidity this week. “There are a number of players that we are negotiating, LOIs, terms tables, etc,” he said.
“Every cent of that – and all existing collateral – goes straight to the user, unless or until we get them right,” SBF promised. It then goes to investors and employees.
Going forward, Alameda Research will stop trading and they will no longer trade on FTX soon, he said.
FTX is trying to raise $4 billion to fill an $8 billion shortfall, Bloomberg reported Wednesday. Alameda Research, FTX’s sister exchange, owes FTX about $10 billion, the Wall Street Journal reported on Thursday.
FTX face probe
Meanwhile, Alameda Research’s website went public on Wednesday night as FTX’s brother trading firm was a major factor in the liquidity crisis. Alameda lost $500 million from Voyager Digital’s bankruptcy in July. It prompted CEO Sam Bankman-Fried to move at least $4 billion in FTX funds to support Alameda’s $15 billion balance sheet at the time, Reuters reported on Thursday. Funds secured with FTX FTT tokens and shares of Robin Hood hero (HOOD) share. Part of that is customer deposits, but the exact value of the assets is unknown.
The Bahamas-based outfit also faces a legal investigation, Bloomberg reported on Wednesday. The Securities and Exchange Commission and the Commodity Futures Trading Commission are investigating FTX’s handling of customer funds and lending activities, as well as its relationship with sister company Alameda Research and US partner FTX US.
In the midst of Wednesday’s crisis, VC firm Sequoia Capital completely reduced its FTX investments to $0. Sequoia previously invested $210 million in FTX.com and FTX US.
Binance turns its back on the takeover
Also on Wednesday, Binance said it would not proceed with its proposed takeover of FTX after reviewing the company’s internal data and books, the Wall Street Journal reported.
“Our hope is to be able to assist FTX customers to provide liquidity, but the issues are beyond our control or ability to help,” the world’s largest cryptocurrency exchange said. world told the WSJ.
It confirmed earlier reports from CoinDesk that Binance is unlikely to complete the buyback.
Binance signed a non-binding letter of intent on Tuesday to buy FTX’s non-US operations in an attempt to resolve FTX’s liquidity crisis. The hole in FTX’s balance sheet could exceed $6 billion, Bloomberg estimated Wednesday.
The combined news sent Bitcoin down another 11%, to below $16,200 and to its lowest level since November 2020. But Bitcoin rallied back to nearly $17,600 on Thursday according to the latest CPI report, dragging Cryptocurrency prices go higher.
Ahead of CoinDesk’s report that Binance would be pulling out of the deal, CEO Changpeng Zhao released an internal company memo on Twitter. The memo tells Binance staff not to trade FTT tokens during due diligence and does not comment on the deal. “We’ve got a good handling team. Everything will go well,” he wrote.
Impact on cryptocurrency exchanges
Zhao said the purchase would not be a “win for us.” “FTX going down is not good for anyone in the industry… User confidence is seriously shaken.” He hopes regulators will scrutinize exchanges more and licenses around the world will become harder to obtain. Zhao said, Binance has to “thoroughly monitor” and increase transparency significantly. And, on Tuesday, he tweeted that Binance will soon start implementing proof-of-reserve for “complete transparency.”
Meanwhile, Coinbase (COIN) assured users on Tuesday afternoon that it had very little exposure to FTX and no exposure to FTT. The publicly traded cryptocurrency exchange says it has $15 million in deposits on FTX to facilitate customer trading and business. But it has no loans to FTX and no loans to Alameda Research. However, COIN stock is down about 20% so far this week after the price of Bitcoin and other cryptocurrencies crashed.
Sell off FTX tokens
FTX issues arose last week when CoinDesk reported that FTX’s FTT token makes up the bulk of Alameda Research’s balance sheet. Concerns about the financial health of FTX sparked massive sell-offs and Binance liquidated its FTT holdings.
Users rushed to withdraw more than $1.2 billion from the exchange on Monday. Some complain about long wait times of hours for their transaction processes. Meanwhile, losses continue to come as the price of FTX’s FTT cryptocurrency fell more than 80% to less than $4 on Wednesday. And it has spread to the rest of the market. Bitcoin price fell below $20,000 for the first time since late October when the cryptocurrency dropped on Tuesday. By Wednesday, Bitcoin plummeted below $17,000 and Ethereum dipped below $1,200 — its lowest level in two years.
Market impact
However, at least some analysts say that the recent drop will not have a lasting impact on crypto prices. “HODLers [crypto slang for holders] Don’t take this news seriously, as it’s not important in the long run,” Ric Edelman, founder of the Digital Asset Council of Financial Professionals (DACFP) told IBD. may decrease in the long term due to the economies of scale of Binance.
One of the key drivers for the industry will be transparency. “Many of 2022’s problems are largely due to leverage between centralized entities, in this case FTX and Alameda,” said Matthew Sigel, head of Digital Asset Research at VanEck.
Centralized exchange regulation so that users know the status of customer assets at all times and proof of reserve are good ideas. “As well as a clear separation of ownership and control between market makers (in this case, Alameda) and exchanges (FTX),” Sigel said.
“Regardless of direct [or] the actual impact on Bitcoin, which is bad for sentiment, and it’s not surprising to see the volatility around Bitcoin,” said Noah Hamman, CEO of AdvisorShares.
“Obviously there are liquidity issues,” he said. But it is difficult to assess the impact until there is more transparency.
“This situation has taken many by surprise; It is naive to think that there will be no more surprises,” Hamman said. Still, companies like Fidelity Investments are getting into crypto, and the rise in institutional adoption is a “great sign that more growth is ahead.”
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
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