Bitcoin has suffered another brutal plunge to below $US17,000, bringing the cryptocurrency’s total losses to nearly 20 per cent in two days.
The 10 per cent fall — from around $US18,650 on Wednesday morning to $US16,620 early Thursday — was triggered by news that the cryptocurrency exchange Binance was “strongly leaning” towards scrapping a rescue takeover of rival FTX.
Industry website CoinDesk, citing a “person familiar with the matter”, reports Binance is now “highly unlikely” to go through with the proposed acquisition after less than a day reviewing the company’s books.
“Binance’s nonbinding letter of intent for the takeover — announced Tuesday as FTX’s financial position appeared to be spiralling out of control — hinged on Binance performing due diligence,” CoinDesk reported.
“Roughly half a day into that process of reviewing FTX’s internal data and loan commitments has led Binance to strongly lean against completing the transaction, the person said.”
Neither Binance nor FTX have publicly commented on the report.
Ethereum also fell another 7 per cent on the news, and has lost more than one fifth of its value over the past week, according to Coinmarketcap.
The total cryptocurrency market has lost close to $US200 billion, from just over $US1 trillion prior to the FTX drama to around $US840 billion.
Earlier, Binance founder and chief executive Changpeng “CZ” Zhao sent a note to employees saying due diligence for the deal was “ongoing”.
Mr Zhao warned FTX going down was “not good for anyone in the industry”.
“Do not view it as a ‘win for us’,” he wrote.
“User confidence is severely shaken. Regulators will scrutinise exchanges even more. Licenses around the globe will be harder to get. And people now think we are the biggest and will attack us more. But that’s OK, we are used to being open and leaning into headwinds. In fact, we embrace scrutiny. We must significantly increase out transparency, proof-of-reserves, insurance funds, etc. A lot more to come in this area. We have a lot of tough work ahead of us. Not to mention prices swinging wildly.”
He stressed that Binance “did not master plan this” and that it was “less than 24 hours ago” that FTX co-founder and CEO Sam Bankman-Fried had called him.
“And before that, I had very little knowledge of the internal state of things at FTX,” he said.
“I could do some mental calculations with our revenues to guess theirs, but it would never be very accurate. I was surprised when he wanted to talk.”
Binance, the biggest exchange accounting for more than half of spot trading volume, confirmed on Tuesday (US time) that FTX was facing a “significant liquidity crunch” and had “asked for our help”.
That followed days of speculation that FTX and sister company Alameda Research, both founded and largely owned by Mr Bankman-Fried, were facing a liquidity crisis, amid revelations Alameda’s balance sheet was too heavily reliant on illiquid tokens including FTX’s own FTT.
In response, Mr Zhao publicly announced that he would sell his holdings of the FTT, worth $US584 million ($898 million), triggering a near-total collapse of the token mirroring the Terra/Luna disaster earlier this year.
The FTT token has lost nearly 90 per cent of its value since last week.
In his letter to staff, Mr Zhao ordered employees not to trade FTT tokens while the deal was ongoing. “If you have a bag, you have a bag,” he said.
“DO NOT buy or sell. As soon as I finished the call with SBF yesterday, I asked our team to stop selling as an organisation. Yes, we have a bag. But that’s OK. More importantly, we need to hold ourselves to a higher standard than even in banks.”
Mr Bankman-Fried, whose $US16 billion fortune was all but wiped out overnight, announced the “strategic transaction” with Binance on Tuesday while promising that his teams were “working on clearing the withdrawal backlog”.
Customers rushing for the exits had reported difficulties withdrawing funds from FTX.
“This will clear out liquidity crunches; all assets will be covered 1:1,” he wrote on Twitter.
“This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologise for that. But the important thing is that customers are protected.”
In a letter to investors announcing the proposed Binance deal, Mr Bankman-Fried said his “first priority is to protect customers and the industry”, followed by shareholders.
“I’m sorry I didn’t do better, and am going to do what I can to protect customer assets, and your investment,” he wrote.
Fawad Razaqzada, market analyst at City Index and FOREX.com, warned that the turmoil could spread outside the cryptocurrency market.
“Even if you are not involved in cryptos, the turmoil is definitely something to keep an eye on, as it may be an additional factor impacting risk appetite across the financial markets,” he wrote.
Ipek Ozkardeskaya, senior analyst Swissquote Bank, was more hopeful, saying if “history is any guidance, it should be fine”.
“We will see a couple of days of high volatility and sell-off, but the contagion will likely remain limited, and the survivors will carry on,” she wrote.
“Yet, investors would be, once again warned, that they are operating in a mostly non-regulated industry, and problems could pop up anytime.”
frank.chung@news.com.au
