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It’s been a jaw-dropping and damned aloud working day in the world of crypto, which, even at its best, is an unstable and strange place.
Here’s the deal: Cryptos were down all morning due to concerns over the solvency of FTX, the exchange founded by Sam Bankman-Fried, aka SBF. He’s an entrepreneur whose name often appears alongside descriptors like “wunderkind”, “savior”, white knight, “digital Warren Buffett”, etc. He is, in short, a crypto celebrity (and a 30-year-old billionaire).
SBF had dismissed rumors of FTX’s liquidity issues, even as its biggest rival, Binance, said it would liquidate $580 billion it held in FTX’s internal token.
Then, in a truly unexpected twist, Binance said it offered to buy FTX to solve its liquidity crunch.
“This afternoon, FTX asked for our help,” Binance CEO Zhao “CZ” Changpeng tweeted on Tuesday, citing a “significant liquidity crisis.”
Hardly anyone saw this bombshell coming, given the public bickering and apparent bad blood between Bankman-Fried and Zhao.
“I’m really shocked by this,” an industry executive told me. “FTX to fail…would be kind of like a Lehman Brothers event for space. But if they were successfully bailed out, that would probably prevent things at the pass.
While the deal is still ongoing, a tie-up between FTX and Binance, the two largest crypto exchanges by volume, would mark a tectonic power shift in the industry.
The news prompted a brief rally in digital assets, but was not enough to calm anxious investors.
Bitcoin fell more than 10% on Tuesday to hit a 52-week low around $17,600, according to CoinDesk. FTX’s internal coin, FTT, hit $5.24, losing 75% of its value. Other industry-related digital assets and stocks, such as Coinbase, also fell.
SBF is one of the most influential figures in crypto. Over the summer, as digital assets tumbled in the so-called “crypto winter,” Bankman-Fried released about $1 billion to bail out companies and consolidate assets to prevent the entire industry from collapsing. He also became the unofficial ambassador, peddling the promise of crypto to a skeptical mainstream financial world.
On Tuesday, however, the savior was to be rescued.
Fears over FTX and Alameda Research, the trading house of Bankman-Fried, began last week after a report by news site CoinDesk suggested that a large portion of Alameda’s balance sheet was made up of FTT, which is a relatively illiquid token.
These fears were stoked by none other than Binance chief Zhao, who said his company would sell all of its holdings – around $580 million – in FTT, “due to recent revelations.” His announcement spooked investors and sent the FTT plummeting.
Essentially, Bankman-Fried received a $580 million capital call and didn’t have the cash to meet it.
What happens now?
Much remains to be understood, but we can expect digital assets to remain volatile until more details of the FTX-Binance deal become public. Some analysts say the tie-up could accelerate Washington’s push toward crypto regulation.
Crypto may have just avoided its Lehman moment, but we are now in uncharted territory, and it is unclear who, if anyone, would be willing to take on the next bailout should Binance find itself in trouble.
Alas, I won’t quit my day job after all. This privilege belongs to a lucky ticket holder in California, the only winner of the record $2.04 billion Powerball jackpot.
The ticket was sold at a Joe’s service center in California, the state lottery said on Twitter. The winner has yet to show up, a rep told CNN, adding, “Someone is holding a very important piece of paper this morning.”
Much of the world is understandably concerned about midterm reviews. But Wall Street is already setting its sights on Thursday, when the all-important Consumer Price Index report will give us an updated reading of inflation.
“Obviously this midterm election — because democracy is on the ballot — is a big deal in the eyes of the people,” Peter Tuchman, a veteran New York Stock Exchange trader, told Reuters. my colleague Matt Egan. “But how much that weighs on the economy is a good question.”
In short, only a major upheaval could affect the market’s reaction at this point. Stocks have rallied in recent days in part because investors are betting Republicans will take control of at least one chamber, leading to a divided government.
Division means traffic jam. And Wall Street love dead end.
In this case, the stalemate will mean that Republicans cannot pass unfunded tax cuts and Democrats cannot pass unfunded spending programs, which would worsen inflation which is already at low levels. bred for decades, and raise interest rates,” says Matt.
“Less government, complete gridlock, will likely benefit the stock market,” Tuchman said.
Several traders told Matt that the midterm elections could easily be overshadowed by Thursday’s CPI, arguably the most important economic gauge of the month.
“Markets can adapt to virtually anything except the unknown,” Tuchman said. “The biggest long-term unknown in the market is the story of inflation.”