Just when we thought the crypto world was stabilizing a bit and getting back to normal, the crypto market has been flipped over its head once again, and this time it’s due to the collapse of one of the leading crypto exchanges, FTX.
In the space of a couple of days, what was once regarded as one of the giant crypto exchanges in the world, fell from a 100 to a 0 real quick; more like a story from grace to grass.
So what really happened to FTX? What is this drama with Binance, and how has the crash affected the crypto market? We’ll get into all of that in a bit.
What is FTX?
FTX is a cryptocurrency exchange platform founded by Sam Bankman-Fried in May 2019.
According to its website, FTX offers innovative products, including industry-first derivatives, options, volatility products and leveraged tokens. We strive to develop a platform robust enough for professional trading firms and intuitive enough for first-time users.
How Did FTX Land In Trouble?
This whole issue started with FTX’s native token- FTT. Crypto traders use FTT for various operations, for example, to pay transaction fees.
Zhao sold his stakes in FTX back to Bankman-Fried last year, who paid for it partially with FTT tokens.
On the 2nd of November 2022, a popular crypto online publication, CoinDesk, spilt the tea on a report that leaked a document revealing that a hedge fund owned by Sam Bankman-Fried called Alameda Research possessed a weirdly large amount of FTT tokens.
Want to know why it raised a few eyebrows? Apparently, Alameda Research and FTX are meant to be two completely different and separate businesses, but the report by Coindesk showed they had pretty close financial ties. Hmmmm, sketchy.
After the news broke, the popular crypto exchange platform, Binance, made an announcement on the 6th of November that they would be selling off their FTT tokens. Because of this announcement, the price of FTT fell drastically, and crypto traders seemed to have lost faith in FTX, and because people would rather not be scammed, they were driven by fear and doubt and soon rushed to pull out of FTX.
A total of $6 billion worth of withdrawals were processed by FTX over three days, and because of this, FTX entered a liquidity crunch, where they did not have enough funds to fulfil requests.
How Did Binance Get Involved?
On the 8th of November, Binance announced that they had reached an agreement to purchase FTX, which would, in turn, bail out FTX from this whole liquidity crunch. But the CEO of Binance, Zhao, added, “Binance has the discretion to pull out from the deal at any time.”
Bankman-Fried also announced on Twitter that the deal between FTX and Binance will keep customers safe and allow FTX to safely process all withdrawals.
1) Hey all: I have a few announcements to make.
Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
— SBF (@SBF_FTX) November 8, 2022
It came to everyone as a shock on the 9th of November when Binance announced that they would no longer be purchasing FTX. They said that they came to that decision because of corporate due diligence. Additionally, they mentioned issues with regulatory investigations and reports of mismanaged funds.
On the 10th of November, FTX announced that they had reached an agreement with the famous blockchain platform, Tron, to exchange certain tokens from FTX for other cryptocurrency wallets.
How Has The FTX Saga Affected The Crypto Market?
Although crypto has been in existence for a while now, and the industry boasts of thousands, if not millions, of traders and investors, there has always been the struggle to convince investors, regulators and pretty much everybody about how it can indeed be trusted. But the collapse of FTX has left the market uneasy.
Since the 8th of November, just a couple of days ago, the price of FTT has declined about 80 per cent.
The crypto market has long continued to prove how much it is intertwined; issues with one aspect of the market always affect it as a whole, one way or another. The value of Bitcoin and ETH, the two largest cryptocurrencies by market cap, have been unstable since the start of this saga and even fell by 20 per cent at a point.
This is basically the story of grace to grass of FTX. From being one of the largest crypto exchange platforms in the world, it is barely holding on and rapidly liquidating.
The crypto market has been left shaken by this whole saga, but we remain hopeful and look forward to the market surviving these challenging times.
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