“Exit All Markets”: Crypto Industry Panics as Binance Announces FTX Acquisition

“Exit All Markets”: Crypto Industry Panics as Binance Announces FTX Acquisition
9 November 2022

Less than a week ago, Changpeng Zhao was speaking at Singapore Fintech Festival about Singapore regulation. Within that time, the Binance founder has managed to sell his competitor’s token, broadcast it to the world, and is now set to buy said competitor at a bargain.

In a tweet following the uncovering of Alameda’s hefty FTT reliance, Zhao stated “we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.”

Read more: Binance to Acquire FTX

Sam Bankman-Fried confirmed the agreement on Twitter too, stating, “things have come full circle, and FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.).”

As the drama unfolded, crypto Twitter responded by amplifying the FUD. “Ok, hear me out… EXIT ALL THE MARKETS,” one Twitter user loudly exclaimed, garnering over 13,000 likes with responders all declaring their shorting positions.

Skeptics also shared concern that CZ purchasing FTX doesn’t make sense, and could ultmately U-turn on the deal. “Prediction : This transaction won’t close and Binance will walk away after their fake “due diligence”. That tweet is the actually the knife in the back of Sam Bankman,” writes crypto Twitter personality Wall Street Silver, quote tweeting CZ’s original tweet.

Read more: FTX – WTF?

Dylan LeClair, who never shies away from offering a skeptical view on the space, weighed in saying, “Similarly, expecting CZ to come in with billions of cash purely to make users whole does not make sense from a business perspective. I’d be happy to be wrong here. Hoping for the best for all users involved.”

Markets

The FUD is real too as markets are making drastic moves. According to Nansen, FTX outflows over the past seven days have almost matched Binance’s inflows.

FTX has lost over US$451.15 million whilst Binance has gained US$411.5 million. It’s worth noting that over US$300 million has been withdrawn from Binance as well over the past 24 hours.

Furthermore, contagion seems to be bubbling too as Circle withdrew over $400 million from Coinbase over the last 24 hours. Nonetheless, this hasn’t stopped Cathie Wood’s ARK from buying 420,949 COIN shares, equating to $21 million.

Ethereum and Bitcoin are also suffering amid the chaos, hitting as low as US$1,286 and US$18,007 respectively.

Read more: FTX Becomes Next Bankrun as Users Panic Withdraw… Should You Too?

According to a tweet by crypto newsletter Bankless, ETH post-merge issuance is now negative, a slightly out-of-the blue tweet considering the fact that ETH had hit negative issuance even before today’s developments due to the network’s new “burning” mechanism which destroys part of the fee that users pay for transaction verification.

However, twitter users have pointed out that the increase of ETH and ETH-based tokens to stablecoin conversion as a result of FTX’s fallout is causing the burning of ETH to be faster than the current rate at which they are issued out into the market, therefore resulting in a negative issuance.

It seems like Eth is becoming deflationary, but it’s unlikely that there will be any positive price movements for now amid the current uncertainty.

Professional opinions

Aside from crypto Twitter, professionals in the institutional space have had a field day sharing their two cents about the debacle.

El Lee, chief operation officer at MAS-licensed Digital Treasures Center described the saga as an “unfortunate outcome” but highlighted that there are lessons to be learned: “One of the common lessons learn here, from both FTX and Luna Terra, is never to use single party issued native token as collateral or rely upon it as reserve backing.”

Managing director of crypto exchange and digital assets trading platform Bitget, Gracy Chen shared her reservations about the deal going through. “It’s highly unlikely that Binance will eventually succeed in acquiring FTX. It looks like CZ had a complete victory, but BN will eventually pay the price for damaging the long-term interests of the industry,” she stated.

“FTX doesn’t have a US license (so it’s nonsense to acquire FTX to get US compliance) Acquiring its users or the tech system? (huh. FTX is dead, and its users are naturally BN’s.) FTX does not have irreplaceable value like twitter… Acquiring FTX isn’t a valuable trade, and CZ’s goal is already achieved. Even if BN buys FTX, it’s harm to industry and a humiliation to decentralization. For BN, it might be a short term victory written into a case study, but will backfire BN in the long term,” Chen said.

VP of Circle’s Asia Pacific region Raagulan Pathy likened Binance’s web3 reign to Google’s dominance of web2. “Every entrepreneur will fear Binance as they do Google, but it still leaves lots of room for other companies to be born. Google is still only ~5% of all technology company value today,” he stated.

Read more: Binance “Not Against Anyone”… Sells FTX Tokens Following Alameda Revelations

“If you build a company today, you pay the “FAANG tax” – you will need Facebook & Google advertising, AWS for infra, Apple for Apps and maybe some Microsoft and Netflix along the way. Everyone in crypto will have to pay the “Binance tax” – building outside their ecosystem will be much harder than leveraging it,” Pathy said.

Meanwhile, Adrian Przelozny, CEO and co-founder of Independent Reserve, said, “As FTX was considered a trusted player in the ecosystem, the longer-term effects will be the reduced trust, and wariness of counterparty risk when dealing with exchanges and liquidity providers. This event highlights the risks of dealing with unregulated counterparties who do not have to abide by rules set by regulators and independent audits. The key takeaway is that illiquid tokens should not be used as collateral for loans, especially if the token was issued by the same party taking out the loan.”

ChainUp founder Sailor Zhong also noted FTX’s significance to the industry and its falling would have taken a heavy toll on the industry, much more so than being acquired by a rival. “It will certainly affect the confidence level of the industry and also draw more attention to regulatory controls,” Zhong said.

Blockhead Team
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