The massacre continues: crypto exchange FTX has liquidity problems

The second largest crypto exchange FTX has liquidity problems. FTX CEO Sam Bankman-Fried reported this on Twitter yesterday.

Thanks to the support of the largest crypto exchange Binance, the investments of the users are not at risk. Binance has signed a (non-binding) letter of intent to acquire FTX.com entirely.

The market panicked. Bitcoin has fallen from over $21,000 to just under $17,300 in recent days (as of November 9, 2022 / 12:10 pm). Many other coins like Ether, Ripple, but especially the FTX darling Solana crashed even worse.

The drama had announced itself in recent days. The lead roles are taken by Canadian Changpeng “CZ” Zhao, founder and CEO of the currently largest crypto exchange Binance, and – in the role of the smitten dog – Sam “SBF” Bankman-Fried, founder and CEO of the up-and-coming and, depending on the metric, second or third largest Crypto exchange FTX.

The quirky SBF enjoyed an excellent reputation in the crypto scene until a few weeks ago. His nerdy TV appearances in shorts, t-shirts, and curly hair helped him achieve cult status. Despite being worth billions, he drives a Toyota Corolla, lives vegan and represents the philosophy of effective altruism. In other words, he wants to help as many people as possible as quickly as possible. He is the personified antithesis of the crypto personalities who like to trumpet their financial success with status symbols.

SBF founded the crypto fund Alameda Research in 2017 and the trading platform for crypto derivatives FTX in 2019. The latter grew explosively in a very short time due to interesting trading opportunities. Just two years after its inception, FTX had one million users and a trading volume of $10 billion per day. FTX bought the naming rights to the Miami Heat stadium for over $100 million. Partnerships with uber basketball player Steph Curry and soccer star Tom Brady were formed.

Enter CZ. CZ also doesn’t like pure mammon and likes to present itself soberly with a hoodie and monkish short haircut. But CZ is a shrewd tactician. In the fast-moving crypto scene, where rows of light figures are knocked off their pedestals, CZ apparently survives all storms unscathed. Also if FTX blows to attack the throne of Binance. Because CZ recognized the potential of its opponents early on – and invested in FTX.

Meanwhile, FTX is thriving. In the wake of the hype surrounding the emerging crypto exchange, the price of the in-house token (FTT) also rose from one to 80 dollars. Only a fraction of it is on the market – the rest remains the property of FTX and Alameda. And they are now depositing the valuable token in transactions as security.

When CZ sells his FTX shares in 2021, he will get 2 billion for it – paid in FTT and BUSD. It’s unclear if CZ insisted on this form of payment or if FTX couldn’t pay him in some other way. In any case, this gave CZ not only a nice victory, but also a means to let FTX go bankrupt. Because: Demand for FTT is so low that Binance has the power to flood the market and crash the price into the abyss. The market leader would thereby reduce its own profit, but it would put the emerging competitor in great difficulty. Rumor has it that he took too many risks and hedged them with FTT.

But CZ has a problem: Sam Bankman-Fried is the darling of the scene. Such an obvious confrontation can turn out to be a shot in the foot. The holy cow may not (yet) be slaughtered.

In the crypto scene, the clocks are spinning fast – and the wind can turn abruptly. Sam Bankman-Fried also found out. The enormous growth of FTX did not go unnoticed by the authorities. FTX is suddenly in legal trouble in Texas. In addition, it appears that SBF supports a bill that is extremely unpopular in the scene.

SBF is presented in a well-received podcast. He gets entangled in contradictions, the wings of the former high flyer are cut live by the brilliant speaker Erik Voorhees. The mood changes.

Now the time is right. On Twitter, CZ blacked out SBF. He colluded against him with the regulatory authorities. With the condition that he only wants to create transparency, he announces that Binance will sell all of its FTT tokens.

The message triggers what it should: In anticipation of falling prices, FTT owners are trying to salvage what can be salvaged and panic selling. The price is falling quickly. From just under $20 to $3.15 in one day. Scared clients, burnt children from the latest bankruptcies, are drawing their savings from FTX – the trading platform runs into liquidity problems. It comes as it should: CZ and Binance present themselves as the golden savior.

The takeover is not yet complete. FTX is not swallowed in one bite. Instead, FTX is built in slowly and slowly. Like too big a prey for a snake.