Binance Set To Buy FTX.com To Cover Liquidity Crunch

Key Insights

• Binance agreed to acquire FTX which suffered from a liquidity crunch.
• Crypto markets are under strong pressure as traders fear that FTX problems will lead to margin calls and forced liquidations. 
• Bitcoin declined back towards the $19000 level. 

Binance Tries To Prevent Another Crisis In The Industry

Crypto markets are in a rollercoaster mode after FTX CEO Sam Bankman-Fried  announced that FTX and Binance had come to an agreement on a strategic transaction. Binance CEO confirmed the deal:

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 FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.

— CZ 🔶 Binance (@cz_binance) November 8, 2022

 

Traders should note that the deal does not impact FTX.us and Binance.us, which are separate companies.

A few days ago, Binance announced that it would liquidate the FTT tokens that it received as part of its exit from FTX equity in 2021.

Changpeng Zhao also noted that liquidation of the FTT tokens was proper risk management which took into account the fate of LUNA, which collapsed in May. On November 2,  CoinDesk reported that the balance sheet of Alameda Research, the trading firm of Sam Bankman-Fried, was stretched.

Not surprisingly, Binance’s announcement put significant pressure on FTT. Rumors about the potential FTX liquidity crunch pushed FTT from the $24 level to the recent lows near the $11 level.

Sam Bankman-Fried signaled that there was no conflict between the exchanges, although it’s hard to believe his words given the recent developments:

5) I know that there have been rumors in media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands.

— SBF (@SBF_FTX) November 8, 2022

Crypto Traders Remain Worried About Potential Contagion

Bitcoin moved towards $20600 after Binance confirmed that it would acquire FTX. However, the world’s leading cryptocurrency has quickly lost momentum and eclined below the $19000 level as traders were worried about potential financial contagion from FTX problems.

Other cryptocurrencies have also moved lower. Ethereum settled back below the $1500 level, while Solana tested multi-month lows near $24. FTT remains under huge pressure as traders rush out of the token. Perhaps, some traders have faced margin calls, which have exacerbated the move.

The reaction to the deal will be a big test for crypto markets, which have started to rebound in recent weeks. The stories of LUNA and Celsius Network have done significant damage to the crypto space this year, and Binance’s task is to prevent panic in the next few days.