The imminent purchase of cryptocurrency exchange FTX by rival firm, Binance, has sent shivers through the cryptocurrency market as it is revealed that FTX was facing a liquidity crunch. Forbes reports:
Bitcoin fell to a two-year low and the crypto market slid after a shocking run on billionaire Sam Bankman-Fried’s FTX cryptocurrency exchange and subsequent pact for an acquisition from rival Binance, as the crypto industry shook from the collapse of one of its foremost institutions.
Binance CEO Changpeng Zhao announced early Tuesday that his company signed a letter of intent to acquire FTX due to a “significant liquidity crunch” at Bankman-Fried’s firm.
The instability at one of crypto’s most trusted institutions sent related assets tumbling, and bitcoin tanked 11% to $18,300 Tuesday, a nearly 75% loss from its peak of just under $68,000 last November.
Other currencies crumbled as well, with the second-most valuable crypto token Ethereum falling 16% Tuesday and FTX’s coin falling a whopping 79%, arriving at a market capitalization of just over $1 billion compared to its $14 billion valuation in March.
Publicly-traded crypto stocks tanked, with shares of exchange Coinbase and MicroStrategy, a tech company heavily exposed to bitcoin, each falling 10% or more Tuesday.
The crypto collapse coincides with a generally strong time for the stock market: The S&P 500 rose 0.6% Tuesday and is up 6% over the last month, compared to respective 6% and 1% losses for bitcoin and ethereum.
$6 billion. That’s the amount of withdrawals requested by FTX users between Saturday and early Tuesday, Bankman-Fried wrote in a note to employees viewed by Reuters. The FTX boss promised in a Tuesday tweet “all assets will be covered 1:1” but it “may take a bit to settle.”
Action Line: You know how Your Survival Guy feels about cryptocurrencies. If the institutions holding and trading cryptocurrencies can’t maintain their liquidity or the faith of their customers, things get ugly. Build yourself a plan for investing your money that relies on more than zeros and ones. Click here to subscribe to my free monthly Survive & Thrive newsletter.
