Binance Agrees to Purchase FTX

Binance and FTX have been formidable rivals in the centralized crypto exchange markets for some time now. FTX became one of the world’s most powerful exchanges within a relatively short period of time (3 years). Yesterday however, FTX was forced to reach out to crypto giant Binance, in a surprising turn of events, amidst a liquidity crisis on the FTX exchange. In this piece, we’ll look at how this will affect retail investors on the FTX and FTX.US exchanges. We’ll also look at how Binance’s intent for acquisition of the FTX exchange may affect crypto in the coming months.

Killer Whale Crypto - Nov 9, 2022

How Will This Affect FTX Users

Let’s get to the important stuff first. FTX founder Sam Bankman-Fried has stressed that above all else, FTX users will be protected during this liquidity crisis. On Monday, November 7th, 2022, alone, FTX users withdrew a combined total of $1.2 billion from the exchange. Meanwhile FTX’s native coin FTT lost 80% of its value by the following afternoon, bringing the rest of the crypto market down with it.

It’s important to note that both Binance.US and FTX.US are both separate entities from their parent exchanges. This means that Binance’s intent of accusation of FTX will not affect their US based counterparts.

The Feud Between CZ and Sam Bankman-Fried

Three years ago, which seems like an eternity in crypto, Binance who was and still is the world’s largest crypto exchange, was the first investor to back the then young FTX exchange. FTX being founded in by eccentric young billionaire and environmental activist Sam Bankman-Fried quickly attracted the attention of the public. As FTX grew in popularity, the relationship between the growing exchange and Binance gradually dwindled.

In the recent months, weeks, and days, both Sam Bankman-Fried of FTX and Changpeng Zhao or “CZ” of Binance have been tossing insults back and forth at one another over Twitter, with increasing ferocity. In this example, we see CZ indirectly jabbing Sam Bankman-Fried, FTX and Alameda Research’s practice of holding the FTT token on company balance sheets: A practice that has a lot to do with the current predicament FTX has found itself in.

Most recently, CZ has released his official statement to the global Binance team via twitter in the spirit of transparency.

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How did This Happen

FTX ended up facing a liquidity crunch due to concerns regarding the exchange’s financial health. This triggered around $6 billion worth of withdrawals within a three-day period. With FTX facing a very real possibility of running out of the cash necessary to facilitate further withdrawals on the exchange, Sam Bankman-Fried was left with no alternative but to reach out to CZ of Binance. CZ then agreed to intervene by acquiring FTX, effectively allowing Binance to provide the liquidity needed to sustain the FTX exchange.

What Does This Mean for the Crypto Market

Liquidity issues have been a dark and reoccurring theme throughout this bear market. If we look at the past, we can see that the TOTAL market cap of cryptocurrency has seen many bear markets. Even so, the cryptocurrency TOTAL market cap continues to increase in value as crypto becomes more commonplace. For better or worse, we will likely see more government regulation in crypto down the road.

The most important thing to keep in mind is that the crypto market has continued to reach higher highs after each bear market. Following this pattern, crypto will almost certainly recover on a long enough timeline, even if we would prefer to see it happen sooner than later. We’re all in this together and our combined strength will be the determining factor in our prosperity!