These questions arise from the fall of the crypto platform FTX

FTX’s sudden crash is another shock to the crypto market. With many questions still unanswered.

The entire cryptocurrency sector continues to wobble as the largest exchange, Binance, has pulled out of buying its competitor FTX, which it had to bail out in the face of a liquidity crisis. And market players are wondering how regulators will react to this new crisis in the sector.

• How did FTX sink?

A press article published in early November plunged into turmoil one of the main cryptocurrency exchange platforms, FTX, and its boss, 30-year-old Sam Bankman-Fried, who counts among the investors in the company the giant BlackRock or a Canadian pension fund .

Specialized media Coindesk claims that a fund created by “SBF”, Alameda Research, consists of 40% of a cryptocurrency issued by FTX, FTX Token (FTT).

“FTT is a token that can be issued without consideration and SBF controls both companies. You’re talking about a conflict of interest…” quipped Dan Ashmore, an analyst at Invezz, in a note.

FTX now needs to find $8 billion to escape bankruptcy, the financial press reports. Difficult task due to distrust of investors. Fund Sequoia Capital, which had invested in FTX, has already told its clients that the platform’s “solvency risk” caused it to count the $213 million invested as lost.

Sam Bankman-Fried apologized on Twitter on Thursday, saying he was looking to raise funds to “be on good terms with users”.

• What was the role of Binance?

The role of the Binance number one in the downfall of FTX, which was one of its main rivals, is strange: since Sunday, Changpeng Zhao has claimed that he wants to get rid of the FTTs he held, then buy the activity its main, eventually cancel the transaction.

And the price of FTT had not dropped when the Coindesk article was published, pending the message from “CZ” on Sunday.

For Charlie Erith, of Byte Tree Asset Management, it is “a master, but perhaps not on purpose”.

In a letter addressed to his employees that he himself published on Twitter, Mr. Zhao defended himself against any Machiavellian plans when the acquisition was still in the news: “The fall of FTX is not good for anyone in the industry, don’t” They don’t see this as a ‘win for us’. User confidence has been shaken.”

An explanation that does not convince the SBF, which sent this message on Twitter to “a certain opponent”: “well done, you won”.

• What consequences in the crypto market?

The price of bitcoin has indeed fallen 20% since Sunday, and despite a rebound on Thursday (fueled by weaker-than-expected inflation in the US, which increases risky assets), is now evolving to levels not seen in two years, at the start of price increases in late 2020 and early 2021.

Investors fear that the FTX empire, which has stakes in numerous cryptocurrency-related projects, will have to sell its assets at all costs to survive.

The phenomenon is reminiscent of the price meltdown of bitcoin and other cryptocurrencies in the first half, when the fall of the cryptocurrency Terra had halved the price of bitcoin, underlines Nikolaos Panigirtzoglou, an analyst at JP Morgan.

“FTX and Alameda Research emerged in May-June as the entities with seemingly strong enough balance sheets to pick out those most exposed to risky investments,” he notes.

Their rapid decline “creates a crisis of confidence and reduces the desire of other crypto companies to bail out”, he judges, estimating that the price of bitcoin could fall to $13,000. This Thursday around 19:00, bitcoin rose to $17,178 (+0.5% over 24 hours) according to data from Coinmarketcap.

• Towards a regulatory turnaround?

In Binance’s press release explaining the cancellation of the FTX purchase, the company notes press reports of investigations by US authorities. This new crisis may encourage US authorities to strengthen crypto oversight.

This “suggests at minimum a lack of transparency on the part of FTX and, at worst, that funds deposited by customers were put into play for the bets that FTX was making,” explains Bradley Duke of the fund ETC Group.

“Even some of the biggest firms in the industry fail to separate their custody and investment arms to protect client assets,” he laments.

Binance promised to publish cryptocurrency reserves more transparently and called on other exchanges to do the same. Moreover, with the demise of Sam Banksman-Fried, the industry is losing one of the privileged interlocutors of regulators and legislators.

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