Bitcoin surges to $1,300 after Binance and FTX strike deal to fix ‘liquidity crisis’

The cryptocurrency market pared its losses on Tuesday as the world’s two largest cryptocurrencies, Binance and FTX, agreed to end the latest “liquidity crunch.”

Bitcoin It was last down about 1% at $20,513.00, according to Coin Metrics. It fell to $19,244 earlier in the day. In the meantime, ether last traded down 2% to $1,560.20.

After the two biggest cryptocurrencies by market cap hit session lows, the cryptocurrency exchange rallied ahead of FTX CEO Sam Bankman-Fried. He announced on Twitter announced that the company had agreed to sell to Binance for an undisclosed sum. Binance CEO Changpeng Zhao confirmed the news on Twitter minutes later.

The deal will affect FTX and Binance’s non-US businesses. Bankman-Fried, also known as SBF, tweeted that the US arms of each company, Binance US and FTX US, are separate and will not be affected by the news. The contract has not been concluded and companies should be more careful, they said.

The crypto market slipped earlier in the day before the deal came together as investor concerns about FTX’s solvency continued to mount after rumors emerged in recent days about the exchange and its sister company Alameda Research.

“There are a lot of mirrors of the Celsius and Three Arrows crisis that happened months ago and what you saw was déjà vu and fear of investors spilling over into the markets,” said Conor Ryder, research analyst at Kaiko.

Some of the biggest losses were in crypto assets linked to Alameda, a trading company owned by SBF. According to Coin Metrics, FTX Token (FTT), the native token of the FTX trading platform, has fallen by 21.5% in the last 24 hours. The token was tied to its rival Ethereum SolanaAlameda, a big supporter, lost 10.7%.

In cryptocurrency stocks, Coinbase climbed back into the green after falling 12.5% ​​in the morning. Robinhood, in which SBF has a 7.6% stake, was last down 5% after falling as much as 9%. Crypto banks like Silvergate and Signature and bitcoin miners like Hut 8 and Riot Blockchain previously fell by double-digit percentages, but have also bounced back.

After Binance founder Changpeng Zhao, investors’ confidence was shaken he tweeted over the weekend, the company will sell its holdings in FTT. Binance is the world’s largest cryptocurrency exchange by trading volume and was an early supporter of FTX. On Tuesday morning, FTX suspended withdrawals from its platform after fearing investors attempted to withdraw their funds en masse.

Zhao said in his tweet that Binance has about $2.1 billion worth of FTT and BUSD, a fiat-backed stablecoin issued by Binance and Paxos.

“Due to recent revelations, we have decided to cancel the remaining FTT on our books,” he said.

These statements refer to rumors about the solvency of FTX, the second largest cryptocurrency exchange in the world by trading volume. Last week’s report on Alameda’s financial condition showed that a large portion of its balance sheet was held in FTT and that various activities were being used using FTT as collateral. Alameda denied the claim, saying it represented only a fraction of FTT’s total balance.

“The Alameda hedge fund is tied to FTX through a ton of FTT tokens, and rumors started that if they were to use all those FTT tokens as collateral… there are two problems,” said Jeff Dorman, Arca’s chief investment officer. “If FTT’s price drops significantly, Alameda could face margin calls and all kinds of pressure; two, if FTX is Alameda’s creditor, everybody’s going to be in trouble.”

“What could have been just an isolated issue at Alameda turned into a bank run,” he said. “Everyone has started pulling their assets out of FTX and there is a fear that FTX will go bankrupt.”

“Black Eye for Trust”

Ryder said industry observers were “generally” confident that FTX and its customers would “be fine,” but the panic was understandable. Before Tuesday morning, the SBF said little on the matter to allay fears.

“The problem is the opaque nature and lack of transparency about the FTX reserves, the Alameda reserves, the relationship between the two — nobody knows how to connect the two,” he said. “On that side of things, it’s very reflective of the Celsius issues because we don’t have the transparency of the funds and the FTX hasn’t come out and reassured investors that we’ve now seen that seep into the markets.”

That’s a good argument for more regulation of centralized institutions, Ryder added, saying it’s important for all centralized institutions — whether they’re hedge funds like Three Arrows Capital or Alameda Research, or centralized exchanges like FTX and Binance, which aren’t publicly listed. . proof of reserves for investor protection.

Dorman echoed Ryder’s sentiments, saying it was “another black eye for confidence” while at worst a short-term liquidity problem.

“They put it [the reserves] in a bank account? Are they using them to lend?” Dorman said. “That’s where the lack of transparency comes in: When FTX fails to do that, something that probably isn’t a problem and shouldn’t be a problem becomes a short-term liquidity problem. perform the entire removal process immediately.”

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