February 2, 2023

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What the heck happened to FTX?

In response, CZ dropped a bomb on Twitter: Binance would sell its entire FTT stake. He claimed the intention was to “sell in a manner that minimizes the impact on the market,” but the announcement caused a sharp drop in FTT’s price (the token has lost almost 90 percent of its value) and a surge in its value Withdrawals at FTX as customers began to panic about the safety of their crypto.

Bankman-Fried initially denied bankruptcy rumors on Nov. 7, claiming that “a competitor is trying to stalk us with false rumors” and that “FTX is fine.” (This tweets have since been deleted.) It later became clear that the company was scrambling to secure a bailout.

CZ has denied that he intentionally created a liquidity crisis at FTX – “I put my energy into building, not fighting,” he tweeted on Nov. 7 – but Tim Mangnall, whose company Capital Block has advised both Binance and FTX, says this was a “smart” business maneuver by CZ that allowed it to “take one of its biggest competitors for pennies on the to buy dollars.” ”

All Hail CZ, king of crypto

Binance has now rejected this deal. The crisis at FTX is likely to strengthen its rival’s position as the world’s largest cryptocurrency exchange. Binance is already larger than a group of its closest competitors (Coinbase, Kraken, OKX, Bitfinex, Huobi, and FTX) combined in terms of trading volume.

Binance will now likely have greater control over the types of coins that are widely available for purchase. For the same reason, the influence of CZ, already one of the most prominent figures in the crypto world, is also being amplified in debates about politics and regulation.

For that part of the community that believes that crypto should stand for decentralization, the merger of two of the world’s largest exchanges will also be a cause for concern. Decentralization is all about sharing power and eliminating single points of failure, but FTX’s case supports neither ambition.

After Binance’s rescue plan was first announced, bitcoin and ether prices fell more than 10 percent, wiping more than $60 billion from the market. You could fall further now.

The FTX implosion will also raise questions about what should be done to protect crypto owners going forward. One CZ suggestion is that all exchanges should provide transparent “proof of reserve” — in other words, clearly demonstrate that they have enough cash to fund customer withdrawals. in one tweethe promised that Binance would adopt this policy “soon”.

Coinbase CEO Brian Armstrong also expressed sympathy for FTX showed “risky business practices” and “conflicts of interest” that the company disclosed – something that transparency requirements would presumably also help. Separately, Armstrong dismissed concerns that Coinbase might face a similar liquidity crisis: “We hold all assets dollar for dollar,” he wrote on Twitter.

But others say this latest dance with disaster is proof people shouldn’t store their wealth on stock markets. “What we’re seeing now is a reminder of the importance of crypto custody,” says Pascal Gauthier, CEO at Ledger, which makes wallets that allow people to manage their own cryptos. “Your crypto doesn’t belong to you unless you use self-custody.”

Updated 11/9/2022 5:30 PM EST: This article has been updated to reflect Binance’s statement that it would not acquire FTX after all.