A simplified account of what nearly brought down the world’s second-largest cryptocurrency exchange platform can be found in today’s Finshots.
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The Decline And Fall Of A Great Power
A DAY, that is what today has been. I had this big thing planned about the election, but it looks like we won’t know anything for a while — so instead, I’ll just send you the links below to read up on the day’s headlines.
CoinDesk will begin its live-blogging coverage at around 8:00 p.m. to keep an eye on the situation after midnight ET for any major developments or outcomes.
Why It Matters
The role that FTX played in the industry was crucial. CoinGecko ranks FTX as the fourth largest exchange by volume as of this morning.
Sam Bankman-Fried was an influential financial backer in the recent midterm elections and a key figure in the debate over certain pieces of legislation.
Perhaps he still is, but the two days it took for his company to go from “fine” to signing a letter of intent with Binance could have lasting effects.
Our coverage of this topic will continue over the next few days, but in the meantime, you can read up on the events of the past week or so of mayhem right here.
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Et Tu, Binance
When Binance, an early investor in FTX, sold its stake in the exchange to a competitor for $2.1 billion worth of FTT, a token launched by FTX, the exchange’s problems really began.
The split between Bankman-Fried and CZ over how to handle cryptocurrency regulation was widely seen at the time as amicable.
Last week, a report from CoinDesk seemed to show that FTX’s sister company, Alameda Research, had its balance sheet clogged up with billions of dollars in FTT.
It was discovered that FTX and Alameda had significant financial exposure to FTT, which cannot be easily converted back into cash. (For a long time, nobody knew for sure what role Alameda played in FTX.)
A Bankman-Fried representative said on November 7 that the company was not insolvent and that “a competitor is trying to go after us with false rumors” and that “FTX is fine.” (Tweets in question have been removed.) It became obvious that the company was frantically trying to raise funds for a bailout.
Tim Mangnall, whose firm Capital Block has consulted for both Binance and FTX, says this was a “shrewd” business maneuver by CZ, one that allowed him to “buy one of his biggest competitors for pennies on the dollar,” despite CZ’s denial that he deliberately created a liquidity crisis at FTX (“I spend my energy building, not fighting”) in a tweet on November 7.
A Toast To CZ, The Crypto King
This offer has been rejected by Binance at this time. The turmoil at FTX is likely to bolster the dominance of its rival as the largest cryptocurrency exchange in the world. Already, Binance’s trading volume exceeds that of Coinbase, Kraken, OKX, Bitfinex, Huobi, and FTX, six of the exchange’s closest competitors.
As a result, Binance is likely to exert more influence over the types of coins that are made available for trade. At the same time, CZ’s standing as one of the crypto industry’s most visible figures will grow in discussions of policy and regulation.
Those who think cryptocurrency should represent decentralization will be troubled by the merger of two of the world’s largest exchanges. The goals of decentralization are power redistribution and the removal of weak links, but the downfall of FTX bolsters neither of these aspirations.
The market lost over $60 billion after Binance’s rescue plan was announced, as bitcoin and ether prices dropped by more than 10%. They might go down even further now.
A deal for the acquisition of FTX, a leading cryptocurrency exchange, has fallen through after larger rival Binance announced it was pulling out after conducting due diligence on the proposed acquisition.
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