After cryptocurrency exchange Binance announced it was backing out of a plan to acquire its financially-challenged rival FTX Trading, cryptocurrency values fell once again for a second-straight day, according to a report by AP.
Bitcoin dropped to a two-year low after Binance confirmed rumors and news reports that it was poised to withdraw from the FTX buyout, which was agreed upon by the CEOs of the two exchanges on Tuesday.
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A logo of the digital currency Bitcoin is pictured on an ATM in a mall in Hong Kong on November 1, 2022. - In contrast to mainland China where crypto has been all but banned, Hong Kong is looking to relax regulations and claw back some of the business that has left and is exploring whether to legalise crypto trading by retail investors
Why Binance Backed Out of the Deal
Binance said in a statement on Wednesday that following an initial evaluation, it had serious reservations that led it to cancel the deal.
According to CoinDesk, the price of Bitcoin fell more than 13% to $15,840, its lowest point since November 2020. Early in the week, it had topped $20,000 in value. The second-largest cryptocurrency, Ethereum, dropped by 13% as well.
After facing what could be compared to a bank run in the cryptocurrency world, FTX decided to sell itself to Binance. Customers left the exchange when they started to question if FTX had enough capital, according to AP.
The abrupt sale stunned FTX's CEO and founder, Sam Bankman-Fried. He was lauded as a sort of a hero earlier this year when he helped save numerous bitcoin businesses that were suffering from financial issues.
FTT, FTX's cryptocurrency token, fell more than 50% after the reports. A week ago, the token was worth ten times what it is now, or roughly $2.50.
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Alameda Research
The main worry among cryptocurrency investors was whether Alameda Research, an associate of FTX, had a balance sheet overburdened with worthless FTT tokens whose aggregate value would not surpass the exchange's liabilities, essentially rendering FTX bankrupt, according to AP.
After Binance got an opportunity to review FTX's financial records, it found that the issue was too complex to be solved.
An individual with knowledge of the issue but was unable to speak publicly owing to lack of authorization told AP that the books were a "black hole" in which it was difficult to distinguish between the assets and liabilities of the FTX exchange and those of the Alameda Research hedge fund.
According to Bloomberg and other media sources, U.S. authorities are currently investigating FTX for how it handled the deposits of its customers.
Shares of publicly traded exchanges with exposure to cryptocurrencies also fell in response to the news. Coinbase shares lost over 10%, while Robinhood shares fell almost 14%.
The value of cryptocurrency assets has deteriorated sharply this year, and FTX is the latest cryptocurrency company to experience financial distress. Other failures include Three Arrows Capital, an Asian hedge fund, and Celsius, a business that resembled a bank and accepted cryptocurrency deposits in exchange for income.
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Written by Jace Dela Cruz
