Erik Weijers & Monica Vierveijzer, 4 months ago

Markets in shock - here's what happened with FTX

After a week that started off great with a nice step forward, the markets took two big steps back. Declining prices all across the board, and social media full of FUD (fear, uncertainty, doubt). It is important to understand what caused this market crash and what to expect next.

It all started last week. According to a report, Alameda Research (which has intimate ties to the second largest crypto exchange, FTX), has billions of dollars worth of illiquid assets on its balance sheet. Binance CEO Changpeng "CZ" Zhao announced that he withdrew 23 million FTT (FTX's own token) and planned to liquidate them. 

Read more about the report

Rumours started a bank run at FTX

CEO of FTX Sam Bankman-Fried (who goes by the nickname of SBF) quickly took to social media to proclaim "FTX is fine. Assets are fine.". But the rumour was already out and spreading like a wildfire, causing a bank run on FTX. Many speculated it was Binance who leaked information to Coindesk, implying we are witnessing a war between the largest and second-largest crypto exchange.

Speculations: did Binance start a war?

Withdrawals at FTX halted

Yesterday afternoon, the bankrun came to a point that FTX no longer had enough funds to allow their customers to withdraw. Even crypto veterans were shocked: how could this have happened?

And here is where it got really shocking. SBF reached out for help from his biggest rival. CZ agreed to provide liquidity and not let his rival's customers be duped. Binance entered into a preliminary agreement to buy FTX. Was all this a brilliant chess move on CZ's part? He denied that he was out for blood, but his tweets about dumping FTT were enough to start speculations.

Binance to acquire FTX

What to expect next?

But if FTX is saved, why do we still see market panic? There are a couple of reasons:

  • The deal hasn't been sealed yet.
  • Reputation damage for the crypto industry.
  • Possible contagion effects. Which other firms might have exposure to the FTT token and FTX equity? This could cause ripple effects. 

So, what's next? Late last night we saw a new low for Bitcoin. It quickly recovered some losses, indicating that a lot of limit buy orders may have been triggered. For those who bought last night's bottom and sold it shortly after, there were nice profits. For those who dollar-cost-average, these times are nice for lowering your average buying price. But of course, one should trade with caution. There is no guarantee we have hit the bottom yet.

Please note this is a rapidly developing story, this post is from Nov 9 in the afternoon. Not all information may be up to date.

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