Crypto Price Crash Update: Why Did FTX Fall? – Here’s What We Know Now
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Earlier this week, speculation around the liquidity crunch at FTX sent shockwaves across the entire crypto industry.
The news that Binance could potentially purchase FTX created a bounce, but when the exchange backed out of the deal yesterday, cryptocurrency prices went into a free fall.
Bitcoin tumbled to as low as $15,682, a level not seen in two years. The flagship cryptocurrency is currently down by around 8% over the past 24 hours after losing another 8% from the previous day. Ethereum, the second-largest cryptocurrency, has also dropped to $1,083, down by around 4% over the past day.
The broader crypto market is also deep in the red, down by at least 20% over the past week. The total crypto market cap currently stands at $837 billion, a level that was last seen in late 2020.
Why Did FTX Fall?
As sudden as the FTX downfall might seem, its roots go back months, when SBF stepped in to save other crypto firms as the crypto market collapsed.
Some of those deals involving SBF’s trading firm, Alameda Research, led to a series of losses that eventually became his undoing, according to a Reuters report, which cited three people familiar with the company’s operations.
As reported, speculation around liquidity issues at FTX started to grow earlier this month after CoinDesk reported Alameda Research, which has close ties to FTX, holds a substantial amount of illiquid assets.
Most of the holdings were in illiquid assets, including FTX’s native token FTT, meaning there was not enough money to cash out if need be.
Meanwhile, Binance CEO CZ, whose relationship had soured with SBF over the past months, announced that the exchange, which held 23 million FTX tokens worth about $529 million at the time, was going to liquidate any remaining FTT on its books.
The news further deteriorated confidence in FTX, leading to a surge in withdrawals. According to the Reuters report, FTX users rushed to withdraw $6 billion in crypto tokens in just 72 hours, while daily withdrawals normally totaled tens of millions of dollars.
The pace of withdrawals made the situation dire. After failing to find a backer or sell other assets on short notice, SBF contacted CZ, asking for help.
CZ later confirmed that SBF had called him. “FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com,” he said in a tweet.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 BNB (@cz_binance) November 8, 2022
However, in a late Wednesday tweet, Binance walked away from the deal, citing that the “issues are beyond our control or ability to help,”
In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.
— Binance (@binance) November 9, 2022
It remains to be seen just how big the hole is in FTX’s balances but some estimates have put this figure to $8 billion.
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