Earlier this year, when FTX announced its intentions to merge with Binance, customers flocked away. They cited concerns about capital and FTX’s relationship with Alameda Research. As a result, the token’s value plummeted by 50%. At one point, it was worth $10.
FTX’s liquidity crisis
The crypto exchange FTX is suffering from a liquidity crisis, and investors are panicking. Rumors about FTX’s problems have prompted investors to withdraw over $5 billion in just three days. While FTX’s CEO blamed internal labeling of bank-related accounts, it was also possible that Bankman-Fried misjudged the users’ margin, which has led to the liquidity crisis.
FTX’s liquidity crisis has caused investors to worry about the company’s long-term viability. While Binance and other crypto companies offered financial help to FTX, the deal with Binance fell through. After the tweet, FTX discussed similar options with other players in the industry. Alameda Research was also winding down trading.
Binance’s letter of intent
In recent days, the crypto market has been characterized by intrigue and a virtual war between two heavyweights, FX and Binance. It appears that the battle is close to an end, though it has caused some damage in other areas of the market. Recently, Binance announced that it would buy FTX, a centralized exchange rival. But the deal fell apart after FTX’s stock price collapsed in a bank-run-like liquidity crunch.
After the FTX debacle, Binance CEO Changpeng Zhao shared his thoughts on the incident. The first lesson was that cryptocurrency firms should always hold a large reserve of cryptocurrency. The second lesson was that companies should not overextend themselves. The FTX deal was controversial for many reasons, but one of them was that FTX did not have enough reserves.
Alameda Research’s financial ties to FTX
The recent turbulence surrounding FTX and its sister company Alameda Research have raised questions about the firm’s financial ties to FTX. As many crypto investors have pointed out, Alameda holds a massive portion of the FTX Token in USD form. As a result, questions are being raised about whether Alameda Research deliberately mislead its investors about the amount of money it holds in FTX.
FTX and Alameda Research are closely tied. Alameda owns about 73% of the total supply of the FTX token. That means that if they were to sell $1m worth of FTT, it would push the price of FTT lower. The market has already seen a significant drop.
Bankman-Fried’s criticism of FTX’s management
Sam Bankman-Fried, the founder of FTX, has come under fire for his company’s recent problems. The crypto exchange is rapidly collapsing and is the subject of a wide-ranging federal investigation. The company recently tried to salvage itself with the help of Binance, but that deal has fallen apart. As a result, many investors have deemed FTX worthless. Sam Bankman-Fried has resorted to publicly seeking financial support from investors.
Bankman-Fried is a well-known crypto investor, and he had been one of the most successful players of the crypto boom. His personal wealth was estimated at over $20 billion at its peak. But the company’s management failed to deal with the downturn and he lost almost all of it. He also owns the crypto trading firm Alameda Research, which is deeply entwined with FTX.