The Demise of FTX?

On November 8th, something strange was going on over at the exchange FTX. People began to speculate that the exchange was in serious trouble and rumors began to circulate that problems were on the horizon.

CZ of Binance tweeted this statement:

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 http://FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days. There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop.

Remember just a few short weeks ago when SBF (Sam Bankman Friedman) was talking about having Coinbase in his sights for acquisition? My how things can change in just a short time here in crypto land.

Now Binance is acquiring FTX and you know baller CZ is going to be scooping it up for pennies on the dollar!

(meme from Dylan LeClair's Twitter feed)

I like how Will Clemente summed up how things went down in this tweet:

- CZ starves FTX of revenue with 0% trading fees on Binance attracting volume from FTX

- CZ shoots headshot by publicly announcing FTT concerns causing a bank run on FTX and decline in FTT price

- FTX unable to cover holes in balance sheet

- CZ acquires FTX

Thanks for playing.

It's not like FTX was some minor player in the exchange scene. It's actually (or was) the second largest exchange behind Binance! Between Alameda FUD and Binance stating that it was getting rid of all its FTT tokens, the exchange starting going down fast and FTT was going deep into the shitter fast.

According to a tweet from Zerohedge, "BINANCE HAS DISCRETION TO WITHDRAW FROM DEAL AT ANY TIME"

WuBlockchain had this summary up on their Substack concerning the situation:

What prompted FTX to make such an astonishing decision? There may only be one answer: FTX could not meet the user's withdrawal needs, FTX misappropriated the user's assets (such as short-term debt and long-term investment), and may even have caused it to fail to pay in large proportions. When the demand for coins withdrawal cannot be met, the misappropriation of assets or even the deficit is relatively confirmed. SBF's parents are professors at Stanford Law School, and he should be aware of the potential legal liability and the enormous impact on his personal reputation. SBF must not want to be the next SuZhu or Do Kwon.

Compared with 3AC Babel Celsius AEX, etc., FTX is actually not very different. The first moment of encountering a liquidity crisis is the need for external rescue. Therefore, there are also many rumors in the market that "Wall Street" is the backer/background of FTX. This is also incomprehensible to the people. With the background and resources of SBF and his team, is it impossible to find the white knight? We can only guess that the time is too tight (too late for complex negotiations), the hole is too large (traditional institutions may not be willing to invest), and SBF's own decision-making (maximizing comprehensive interests, mutual understanding of business), there may be part of the reason.

Of course, there are still many unknowns as to whether the acquisition will ultimately succeed. The first is whether the DD of Binance is successful, such as whether more problems will be found; the second is whether FTX will find other white knights while gaining time and confidence; the third is the US regulatory authorities and Whether regulatory authorities in other countries will take action, although both Binance and FTX theoretically have no US users, they are also under investigation by various US agencies. CoinDesk also pointed out that such acquisitions could violate antitrust laws.

If according to normal progress, Binance successfully acquires FTX, and SBF still holds FTX US and Alameda, what will be the impact? (Although it's too early to talk about it at the moment)

First of all, for Binance, the most powerful competitor is temporarily eliminated; OKX Huobi Bybit KuCoin, etc. will also benefit, and the global exchange is once again occupied by the Chinese（out of China）. Competition will also continue to be fought among the Chinese; Secondly, there is great uncertainty in the future of SBF. Without FTX, we are not sure whether the Solana ecosystem he supports, as well as the current FTX US and Alameda can still show their strength in the industry. In the end, Binance’s bailout actually covered up the problems of FTX, and we may not see much progress in seeing better transparency, 100% reserves, etc.

I wonder if people are going to pile on FTT like they did with Luna Classic went that went down. Does SBF have enough pull that true believers will still follow that pied piper around?

How come when bad shit goes down in crypto we see CZ emerge from the shadows and grab the reins? There's more to him that meets the eye. I was always impressed with his story about how he sold the apartment building he owned (his only asset in the world and he lived in it) and went all in on $BTC. That's pretty hardcore and I have a lot of respect for him. How do you all feel about CZ? Let me know what you think in the comments below.

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