There is no reason for a rally in the crypto market to occur both from a technical and a fundamental point of view. Rising costs of borrowings is dumping down the price of digital assets but something more is needed to push Bitcoin prices below $18,500 per coin. This something has suddenly emerged.
A few days ago, Binance tweeted that it is going to pull out of FTX and sell its holdings in the firm after some undisclosed unethical actions by Sam Bankman-Fried, founder and CEO of FTX and Alameda, a sister trading firm. Coindesk has recently reported that Alameda’s debt of $8 billion is backed by FTX’s tokens (FTT), while the company has $14.6 billion assets, with a large amount held in FTT. So, crypto market players were scared that a large sell-off of FTT would lead to a margin call for Alameda and eventually to its insolvency.
However, many doubted that FTX has some severe issues as its founder Sam Bankman-Fried is well-known for his market manipulations and believe that these possibly led to a serious of clamorous bankruptcies and price pumps and dumps. He has backed the Democrats and lobbied FTX interests in Washington as policy makers were making efforts to tighten crypto market regulations. Alameda’s collapse may hit the market even harder than the Terra incident, as it has been involved in numerous crypto projects and its liquidation would make most altcoins suffer.
Alameda officials asked Binance to sell FTT at $22 per token to avoid elevated volatility. This price was seemingly essential for the firm but this level was soon crushed, and prices plunged to $9 per token. Rumours circulated that large FTX clients were rushing to pull out of the exchange as some withdrawal issues were reported with the FTX. Bybit crypto exchange accused Sam of dumping BIT tokens and of this leading to prices falling by more than 50%. This was the point where the situation apparently became very serious.
Changpeng Zhao, a Binance founder, tweeted on November 8 that FTX asked for help to resolve a significant liquidity crunch. Why Sam has not used the opportunity to borrow money from the market and ask the person who likely initiated the clash why such actions were put into motion remains unknown. However, such borrowings could be very costly now.. So, there was really no other choice as liquidating Alameda would lead to a total collapse of the venture. Nobody wanted to finance FTX after it was revealed that the stock exchange used clients’ funds to finance Alameda’s speculations. Besides, Alameda had seemingly insufficient assets to replenish these funds and it is important to remember that Binance acquired only FTX, and Alameda’s bad debts are still uncovered. So, Sam bought some time for Alameda, while the collapse of the firm could rock the market at any moment. Exactly how severe will these issues affect the market will be seen in the near future.