FTX: Near-collapse of exchange sends shockwaves through cryptocurrency market

The almost-collapse of FTX, one of the biggest cryptocurrency exchanges in the world, has shocked the market for digital assets.

After a spike in withdrawals led to a “severe liquidity crunch,” FTX and its larger rival Binance reached a bailout agreement on Tuesday.

Withdrawals of $6 billion (£5.2 billion) were reportedly sparked in just three days by worries about FTX’s financial stability.

According to Binance, FTX’s non-US unit will be purchased, subject to due diligence.

Sam Bankman-Fried, the creator of FTX, and Changpeng “CZ” Zhao, the CEO of Binance, are two of the most influential figures in the cryptocurrency industry and prominent rivals.

Mr. Zhao, who tweeted on Sunday that Binance would sell its shares of FTX’s digital token, known as FTT, contributed to the pressure on FTX.

He remarked, “We have chosen to liquidate any remaining FTT on our books because to recent disclosures that have come to light.” The value of FTT has decreased by approximately 80% this week.

Mister Zhao tweeted on Tuesday, “This afternoon, FTX asked for our help. There is a significant liquidity crunch”.

 

Despite having signed a letter of intent to purchase the company, Binance stated that it had “the authority to terminate the agreement at any time.”

Moreover, Mr. Bankman-Fried stated on Twitter: “Our teams are working on clearing out the withdraw backlog as is. This will clear out liquidity; all assets will be covered 1:1.”

“This is a black swan event that adds more fears in the crypto space. This cold winter for crypto now takes on more fear,” Wedbush Securities’ senior stock analyst, Dan Ives, told the BBC.

The market for digital assets was rocked by the announcement, and cryptocurrencies plunged.

The price of bitcoin dropped more than 10% to its lowest point since November 2020.

Online trading platform Robinhood had a loss of more than 19% in stock value, and cryptocurrency exchange Coinbase saw a decline of 10%.

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