Binance and FTX have just announced that, pending due diligence, Binance will be acquiring FTX in order to help with a “liquidity crunch”.
Neither FTX nor Binance have provided an explanation for how an exchange which should always have full assets to cover user deposits experienced a liquidity crisis. However, Protos has been unable to locate cold wallets for certain FTX assets including Ethereum.
Earlier today, FTX stopped processing withdrawals of ERC-20 tokens, Solana, and Tron. It was recently reported that Alameda Research’s balance sheet was disproportionately weighted towards an over-valued FTX Token (FTT) position, which led to Binance reconsidering its ownership of FTT and announcing it intended to liquidate its position.
This led to Caroline Ellison, CEO of Alameda Research, announcing it would purchase the FTT from Binance for $22. However, this level was blown through overnight — FTT is worth $14.59 at time of writing. The market cap has fallen over $1 billion in the last 24 hours.
Update 6:20 PM UTC, Nov. 8th: Cory Klippsten, CEO of Swan Bitcoin commented on the news exclusively for Protos:
The big takeaway from the FTX mess is that crypto has no clothes. The entire non-Bitcoin crypto industry is inherently fragile, because the fair value of all non-Bitcoin cryptos is zero. So they are literally a confidence game. If people lose confidence — for any reason — any altcoin can go to zero as there is no natural demand for these things.
So when a company like FTX loads up their coffers with a bunch of directional bets, abandoning the much smarter strategy of simply running a casino and taking a rake, they’re getting high on their own supply and subject to the whims of an irrational market.