What happened?
On the night of November 10, bitcoin updated to its lowest level in several months – the cost of the cryptocurrency fell to 15.6 thousand dollars. Although bitcoin traded above $21,000 last week. On November 8, the rate fell 11%, on November 9 – another 13%, on Thursday morning the drop was about 8.5%.
Information and analytics platform CoinGlass reported on Tuesday that due to margin calls (forced selling of assets) in the crypto market, traders are losing more than $717 million in total per day, with nearly 330,000 positions being forced off.
The main reason for the collapse of Bitcoin was the corruption scandal with the FTX crypto exchange, which is the third largest crypto exchange in the world by capitalization, and the fall in the value of its own FTT token.
Who are FTX?
Sam Bankman, CEO of FTX
Reuters
Sam Bankman-Fried, 30, graduated from Massachusetts MIT, one of the world’s most prestigious universities of technology. It traded on Wall Street for a few years after that, and in 2019 founded its own cryptocurrency trading platform FTX and trading company Alameda Research. Bankman has become rich in cryptocurrency trading in just a few years and has entered the Forbes billionaires under 30 ranking.
At its peak, it had $15 billion in assets under the management of Alameda Research. Bankman’s earnings plan was pretty simple – he actively invested in a diverse portfolio of crypto-assets. That is, at the expense of the users of his platform bought various cryptocurrencies, including little-known ones (they are called shitcoins in the jargon, from the English Shit). By mid-2022, Bankman was doing well – investors were valuing his FTX exchange at $25-32 billion.
However, in early November, CoinDesk experts published an investigation stating that the FTX exchange had gone bankrupt, its assets were diluted and it was not backed by any real funding.
In parallel, Bloomberg reports that the U.S. Securities and Exchange Commission (SEC) has been investigating Bankman’s platform for several months, suspecting that its holders are embezzling funds. But earlier rumors circulated that Bankman and his associates spent hundreds of millions of dollars at their discretion.
After such news, worried investors began withdrawing large sums of money from the exchange and selling the FTT token. By November 9, its rate had collapsed by 72%. Another guru of the cryptocurrency world, Changpeng Zhao, chairman of Binance, fueled the fire.
What does CZ have to do with it?
Binance CEO Changpeng Zhao
Reuters
Changpeng Zhao is the CEO of Binance, the world’s largest crypto exchange. At the age of 45, his fortune is estimated by Forbes at $ 65 billion, and his authority in the world of digital finance is unusually large – everyone knows him by the laconic nickname CZ. Changpeng, among other things, owns $500 million of Bankman’s FTT tokens, and after the CoinDesk investigation came to light, Changpeng announced plans to sell them. This only increased the panic of other investors.
After that, the head of Binance said that competitors from FTX turned to him for help. “This afternoon, FTX reached out to us for help. There is a serious liquidity crisis. To protect users, we signed a non-binding letter of intent aimed at fully acquiring FTX and helping to clear the liquidity crunch. CZ will do a full accounting review in the coming days. We’ll do it,” he tweeted.
However, after that, information emerged that FTX’s activities were controlled by the American stock market regulator. And Binance quickly gave up on its intention to incorporate a competitor. On November 10, the company reported that it was embarrassed by suspicions of misappropriation of funds. “Initially, we hoped we could support FTX clients to provide liquidity. However, the issues are beyond our control and capacity,” he said.
Crypto market analysts finally acknowledged that Changpeng took advantage of Bankman’s problems, exacerbated the problems by selling FTT tokens, promised help, and then retracted that promise. And so it pushed the unstable position of the world’s top 3 crypto exchanges to collapse. And as almost all crypto assets are somehow combined with blockchain platforms, mutual participation and sharing, the collapse of a major platform like FTX has dragged the rates of bitcoin and all other digital currencies with it.
Source: Gazeta
Ben Stock is a business analyst and writer for “Social Bites”. He offers insightful articles on the latest business news and developments, providing readers with a comprehensive understanding of the business world.