On Wednesday, Crypto experienced a terrifying day due to the massive collapse of the FTX, a leading crypto exchange platform in the crypto industry.
Binance announced to walk away from the bailout of FTX to a reported cash shortage of $8 billion, leading the company to potential bankruptcy. The reversal comes just one day after Changpeng Zhao, Binance CEO, announced that the largest global crypto exchange had reached a non-binding deal to buy non-U.S. businesses of FTX for an undisclosed amount, recovering the company from a liquidity crisis. Earlier this week, Zhao pulled out $500 million worth of investments from FTX and expressed anxiety about the financial stability of the platform. Earlier this year, private investors valued FTX at $32 billion.
Market Reaction on FTX collapse
However, the deal fell apart on Wednesday. Binance wrote on Twitter that during “corporate due diligence,” discoveries made, combined with federal inquiries into the company, which is newly announced, made the deal too risky.
Many are already comparing this FTX collapse with Lehman Brothers in 2008, which helped participate in a Global Financial Crisis. As the deal of FTX bailout by Binance was canceled, BTC declined below $16,000 for the first time since Nov 2020, while ETH lost nearly one-third of its value from Monday.
John Lo, managing partner of digital assets at the investment firm Recharge Capital, says, “I think it’ll be very bad: This is contagion to the maximum. We’re going to see household crypto names, lenders, and funds go down completely. It’s going to get messy and protracted.”