The crypto industry has always been riddled with controversies. But given the pace with which products and services are built around crypto, it’s not so surprising . In fact, that very pace is what drives innovation despite resistance from the establishment. One good thing about crypto space has always been the united front put forth by crypto proponents against detractors until now.
Changpeng Zhao, CEO of world’s largest crypto exchange Binance, publicly tweeted they are going to liquidate their FTT token holdings and the market is already reacting to this news. Bitcoin (BTC) has broken below $20,000 and lost 5% in 24 hours. Wait, what? If that’s a lot to grasp, do not worry, we have you covered in today’s article.
Here goes the story. Binance had invested in FTX cryptocurrency exchange founded by Sam Bankman-Fried in 2019. FTX is currently valued at over $30 billion and Binance had owned an equity in FTX which Sam bought back last year citing difference of opinions in running business. In return, Binance got around $1.2 billion worth of BUSD and FTT. Now, FTT is the token backed by FTX exchange. According to Binance, they were just holding the tokens publicly.
Let us first understand what Sam Bankman Fried and his exchange has been up to all this time. Sam was fierce in his strategies and highly successful after founding FTX and Alameda. He had a net worth of around $10 billion at his peak. He bailed out crypto lending platform BlockFi, bought Voyager’s assets and placed bids for bailing Celsius too. He was considered a messiah for the crypto space until cracks started to appear in his empire.
First blow was the sudden stepping down of Alameda CEO Sam Trabucco. Alameda is a crypto trading firm known for its aggressive strategies. Then trouble came in the form of securities regulators trying to get FTX down legally. Now, on a totally different front, Sam has been showing political interest as he was one of the largest donors ($50 million) in the upcoming midterm elections. Public sentiment on Sam took a beating as he seemed to have ideologies that’s opposite to the philosophy of Decentralized Finance (DeFi). Post the emergence of a copy of the still in-progress Digital Commodities Consumer Protection Act (DCCPA), which outlines how the Commodities Futures Trading Commission would regulate the crypto industry, it appears to be against DeFi. And, Sam has openly backed it. Though he has argued that DeFi will be able to flourish alongside, the damage has been done.
This week, things escalated when Alameda’s balance sheet leaked. As per CoinDesk, Alameda research has $14.6 billion of assets, against $8b of liabilities. For assets: $3.66b FTT, $2.16b “FTT collateral”, $3.37b crypto ($292m SOL, $863m “locked SOL”), $134m USD & $2b “equity securities. As you can see, most net equity is tied in completely illiquid altcoins. Rumors started spreading and a bank run started. This is when we saw a massive $584 million worth of FTT being transferred to Binance.
CZ confirmed that it was in fact Binance that did the transfer and it was a part of their post-exit risk management strategy to systematically sell all of their FTT tokens. He also hit out that he is not against anyone but reiterated no tolerance for people who lobby against industry players behind their backs. Though Sam has assured that FTX is not in trouble, FTT token has come under immense selling pressure. FTT has lost 40% in just three days.
From an investor's point of view, it is advisable to sideline their capital for now until the smoke clears and carry due diligence before investing again.
We have launched Cryptogram, an India-focused free weekly newsletter on blockchain tech, global crypto markets, and Web 3.0 technologies which promise to change our future. If you would like to subscribe to this newsletter, click here. You can read our past editions here. Also, check out our website here.
Use promocode TNM51 at www.giottus.com/profile#promo after registration to get Rs.51 worth free Bitcoin.
Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.