Crypto Markets Whipsawed After Binance’s Deal To Acquire FTX Fuels Short-Lived Rally

Crypto markets are on track for their worst day since June as investors are choosing to stay on the sidelines of the nascent industry while yet another centralized crypto player finds itself on the ropes.

FTT, the native token of the FTX exchange, is down nearly 85%. Ether is down nearly 20% on the day while Bitcoin has dived 12% to its lowest level since December 2020.

The last time crypto saw similar levels of volatility was back in June, when sharp losses were also driven by centralized players in dire financial straits. Celsius, a crypto lending platform with 1.7M users, filed for bankruptcy after freezing users’ assets, and crypto hedge fund Three Arrows Capital imploded after its leveraged bets went awry.

Concerns over insolvency at crypto hedge fund Alameda Research and FTX, the fifth-largest exchange by trading volume, have gripped markets ever since surfacing late last week. FTX and Alameda are pillars of billionaire Sam Bankman-Fried’s crypto empire.

FTT Price. Source: FTX

Earlier in the day, markets staged a short-lived rally after Binance, the world’s largest crypto exchange, announced it had reached a preliminary agreement to acquire FTX.

Liquidations

That rally quickly fell apart, however, and more than 400,000 leveraged traders have been liquidated in the past 24 hours.

“My read is that the bounce was mostly news traders buying on the perceived resolution of FTX fud, but the reality of the deal means that FTX (and probably Alameda) has deep issues which could have very real spillover into the rest of the market…SOL is the obvious one but it all really depends on what the status of Alameda is. Which is unknown,” Will Sheehan of Parsec Finance told The Defiant.

Investors are waiting to see whether the deal goes through and withdrawing their digital assets while they can, rather than risking having them frozen, said Marius Ciubotariu, core contributor to Hubble Protocol and Kamino Finance on Solana.

“This acquisition is completely unexpected by anybody in the industry. I suspect even CZ. As such it’s going to make people derisk significantly. Not least because they can withdraw at the moment,” Ciubotariu said in an email. “Few will want to wait for a Celsius-like situation where they are locked in for the foreseeable future.”

Ciubotariu believes this event could “lead to cascading liquidations and large numbers of people leaving crypto.”

Binance to Take Over FTX After Insolvency Concerns Spark Market Rout

Binance Agrees to Bail Out Rival After FTT Token Collapses

The Defiant

Reuters reports that withdrawals from FTX.com have been paused after the exchange saw over $6B in net outflows in the past three days. The issue is expected to be resolved “in the near future,” according to a message sent to staff by Bankman-Fried.

Solana Swoons

Tokens in the Solana ecosystem are among the hardest hit, with the blockchain’s native SOL token down by a third to $22, a level last seen in July 2021.

SOL Price. Source: FTX

Alameda is a longstanding supporter of the Solana project, having backed numerous startups in the ecosystem. Major decentralized exchanges (DEXs) like Serum (SRM) and Raydium (RAY) have lost over a quarter of their value today.

“As one of the main driving forces that had pushed the whole space forward during the bull run, the FTX buyout has potential implications for tens of thousands of users and hundreds of projects. The main question mark remaining hanging over the market is about the status of Alameda after the buyout,” Kiril Nikolov, DeFi strategist at crypto lender Nexo, told The Defiant.

Macro Factors

For the moment, the damage seems limited to crypto as major stock markets are trading flat after rallying earlier in the day.

Investors will be looking to the U.S inflation data on Thursday to glean clues as to the Federal Reserve’s next move. Federal fund futures currently indicate a 57% probability of a 0.50% hike at the U.S. central bank’s next meeting on Dec. 14.

Fed Target Rate Probabilities. Source: CME FedWatch