FTX might be on the brink of collapse
The crypto world is still going through a rough patch it seems. Binance just backed down from a non-binding acquisition deal with FTX, and now Sam Bankman-Fried’s company is in trouble.
Binance announced last Wednesday that it’s no longer acquiring the crypto company.
On Wednesday, Binance announced that it’s no longer planning on acquiring FTX. The news surprised crypto investors, and put Sam Bankman-Fried’s company in a tight spot.
The decision comes one day after Changpeng Zhao, Binance’s CEO, announced that the company had reached a deal to purchase FTX’s foreign businesses for an undisclosed amount. The purchase would help FTX with its liquidity crisis. Early in 2022, FTX was valued at over $32 billion.
Binance stated in a tweet that it had hopes to support FTX’s customers and provide liquidity. However, the issues presented are beyond their control or ability to help.
According to insiders, Bankman-Fried turned to Binance on Monday night after facing a liquidity crunch. FTX’s CEO was struggling to raise enough money from investors and venture capitalists.
Initially, Changpeng Zhao agreed to help. However, Binance was soon to change its course, saying there were alleged U.S. agency investigations and mishandled customer funds on FTX’s part.
Right now, it’s unclear who will be next in line to purchase Bankman-Fried’s crypto empire. The CEO told investors that the company is currently facing an $8 billion shortfall due to withdrawal requests, and that it needs emergency funding to meet the demand.
The dissolution of the deal between Binance and FTX is just the latest chapter in a surprising collapse that’s shaken up the crypto world this week. Just on Monday, Bankman-Fried tried to reassure investors that FTX’s assets were fine.
However, as soon as Zhao stated publicly that Binance was going to sell all of its FTX native tokens, known as FTT, massive sell-offs started. And Bankman-Fried could not stop it.
Crypto has had yet another rocky week
According to Eric Newcomer, an independent reporter, one of Silicon Valley’s leading VC companies, Sequoia Capital, sank around $210 million into FTX.
Meanwhile, FTX recently told investors that their projection for its operating income would drop just a little over $144 million in 2022, down from $338 million in the previous year. Revenue was projected to increase to $1.1 billion from 2021’s $1 billion.
On Tuesday, Bankman-Fried stated that FTX’s customers demanded withdrawals that went over the $6 billion mark. He then deleted a few tweets from the prior evening which indicated that the company had enough assets to cover all the holdings.
In a memo released on early Wednesday, Changpeng Zhao told Binance employees that he never planned to collapse FTX. He reiterated that if the company goes down, it’s bad for everyone in the industry, and that Binance employees should not consider this as a win for them. He also advised them not to trade FTT tokens.
Between Monday and Tuesday, FTT lost approximately 80% of its value. It wiped out more than $2 billion in a single day by falling to $5. On Wednesay, the token dropped to a significantly low mark of $2.30, which shrank the total value of circulating currencies to a little over $300 million.
The crypto market as a whole sank amid the news between Binance and FTX. Bitcoin fell 15% on Wednesday following a 13% fall on Tuesday. The world’s most popular digital currency is currently trading below $16,000. Ether, the second most popular token, dropped more than 30% and is on the brink of trading below $1,000.
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What is cryptocurrency?
If you’re still lost as to why the possible collapse of FTX is such a big deal, we can help you understand it a little better. Follow the link below for our comprehensive guide on cryptocurrencies. Plus, a few tips as to whether you should (or shouldn’t) invest in them.
About the author / Aline Barbosa
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