The cryptocurrency business is notorious for its high degree of volatility, and after a turbulent summer, it appears that the market is about to enter what is being called a “crypto winter.”
A public Twitter argument that took place between the owners of two of the major cryptocurrency exchanges, Binance and FTX, took place during the previous week. This argument was the catalyst for the failure of one exchange and the failure of a rescue plan from the second exchange.
It should come as no surprise that these incidents have sparked widespread concern across a market that has only just about recovered from a series of significant disasters during the year.
Binance, a cryptocurrency exchange whose current market capitalization is projected to be greater than $300 billion, became one of the early investors in FTX back in December 2019.
Since that time, FTX has expanded to be valued over $32 billion as of January of this year, and it counts mainstream banking titans like BlackRock and SoftBank as one of its numerous supporters.
The Chief Executive Officer of Binance, Changpeng Zhao, and the Founder of FTX, Sam Bankman-Fried, are two of the most powerful figures in the world of cryptocurrency exchanges, which are online marketplaces that allow investors to buy, sell, and store digital currencies.
Bankman-Fried was considered as a somewhat steady and a force to reckon with in the world of cryptocurrency, in contrast to Zhao, who has been tied with regulatory worries over Binance. During the crypto market crash that occurred in the summer of 2018, he stepped in to save failing enterprises and has made it a point to communicate with the media and US officials.
What Transpired Between SBF and FTX?
The FTX exchange company was a part of Bankman-empire, Fried’s along with Alameda Research, a trading firm that was not meant to be affiliated with FTX. However, a recent article published by websites that cover the business indicated that FTT was the primary contributor to Alameda’s balance sheet.
This is the crypto token that was issued by the FTX exchange. Holders of this token or coin are eligible for a discount on the trading costs that are charged on the marketplace.
The printing of FTT is fully in the hands of Alameda’s sibling firm, FTX, and may be done according to FTX’s whims. Additionally, Alameda possessed a total of $3.37 billion spread among a variety of different cryptocurrencies, such as Solana and Serum. This indicates that any drop in the value of cryptocurrencies might have a significant impact on the corporation.
Although there is nothing wrong or illegal with these holdings, particularly in the infamously unregulated cryptocurrency industry, the reports showed Alameda’s greater emphasis on a coin created by its sister company rather than one approved by a government. This is despite the fact that there is nothing wrong or illegal with these holdings.
If a firm in such a situation were to end in financial difficulties, the assets in question would lose value along with the company, rendering them ineffective for safeguarding customers and shoring up the business. Because of this revelation about Alameda’s financial sheet, there are now worries regarding the company’s overall liquidity.
In point of fact, after the news article on Coindesk was published, the CEO of Binance, Zhao, tweeted his intentions to sell the remaining FTT that remained on Binance’s books.
What Kind Of Impact Did This War Have On The Cryptocurrency Market?
Because Zhao has 7.4 million followers on Twitter, his tweets have the ability to influence market sentiment. The price of FTT dropped from $22 to $4 in a couple of days, while FTX was reportedly inundated with withdrawal requests totaling $6 billion during that time. Because to the high volume of queries, some clients were unable to gain access to their bitcoin holdings that were stored on the exchange.
Bankman-Fried provided a response on Monday, stating that a rival is attempting to go after him with false stories and adding that FTX is OK, which he subsequently withdrew.
He continued by claiming that the rumors are spreading misleading information. However, it appears that it was already too late as the entire value of the cryptocurrency markets plunged from more than one trillion dollars to about 830 billion dollars in a couple of days.
In an unexpected turn of events just a few days later, both Zhao and Bankman-Fried tweeted information of an agreement for Binance to buy FTX. However, the next evening’s edition of the Wall Street Journal stated that cryptocurrency exchange Binance had opted against moving through with the purchase after doing due diligence on FTX’s business model and financial standing.
Binance tweeted that they are powerless to help since the issues are beyond of their control. According to Bloomberg, US authorities are looking into FTX’s treatment of customer funds by investigating the Securities and Exchange Commission and the Commodity Futures Trading Commission.
Will the Crypto Market Fall Even Further?
A number of high-profile failures in the cryptocurrency business have occurred during the past 12 months, including Terra and Luna coins in May, Celsius Network in June, and Three Arrows Capital in July.
The crash of one of the most prominent brands in cryptocurrency, followed by the lack of clarity surrounding the Binance rescue, has had an effect on the entirety of the cryptocurrency sector. As a result of these developments, the Bitcoin price dropped by about 20 percent.
The collapse of this rescue arrangement will not do much to improve confidence in the industry, and it might hasten the onset of a crypto winter by fueling worries of price volatility and the necessity of more rescues in the future.
During the 24 hours that surrounded the conversations around the potential rescue arrangement, the value of one FTT coin dropped by almost 90%, while trading volumes at FTX dropped by more than 70%.
A significant portion of this lost activity will shift elsewhere, which means that the collapse of FTX might result in the expansion of Binance. It’s possible that this will persuade authorities to start looking at the area with a lot more scrutiny.
It is the ultimate irony that decentralization, which is meant to be one of the primary qualities of cryptocurrencies, is likely to become more centralized as a result of recent events due to the fact that activity is likely to concentrate on one exchange. Because of this, it’s possible that crypto aficionados may be less likely to use Binance ahead.
What Does The Future Of The Crypto Market Look Like?
The values of cryptocurrencies have never been predictable, and the ongoing drama surrounding Binance and FTX is just going to increase the degree to which prices are unknown. There is not much time left in 2022, and it is quite improbable that a recovery will occur.
The outcome will be determined by a number of different circumstances, most importantly the strategy taken by authorities and the acceptance of cryptocurrencies by institutional investors. Until there is convincing evidence of a rally, investors are likely to take a protective stance in their investments.
Despite recent precipitous falls in cryptocurrency values, the industry as a whole is seeing firsthand in the drama surrounding FTX that digital assets will gain widespread acceptance in the days ahead.
Those that are more resistant to change will require more time before they can absorb digital assets, while countries that are more open to innovation will see a quicker rate of adoption. Having said that, there is a reasonable expectation among industry professionals that cryptocurrency markets will recover from this phase.
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