The world’s largest cryptocurrency exchange, Binance, has renounced a deal to acquire its cliff-edge rival, FTX, leaving the company one step from collapse after a wave of withdrawals, which has met the worst expected end: FTX bankruptcy.
The collapse of the FTT, the token native to the FTX exchange, created fears of contagion to others and cryptocurrencies, causing overall markets to plummet. This token collapse is directly related to a withdrawal on the FTX exchange and the rumored lack of liquidity.
Directed by Sam Bankman-Friedone of the most recognized figures in the cryptocurrency sector, the company seemed to be going correctly, but nothing could be further from reality and Binancehis great rival, wanted to record this.
The clash between these popular cryptocurrency exchanges dates back to FTX’s purchase of Binance shares in the summer of 2021. Binance, an early investor in FTX, received about $2 billion as part of its exit from FTX. The 2 billion dollars they were paid in FTT, the FTX token.
Since the purchase, Changpeng Zhao, CEO of Binance, and Sam Bankman-Fried have not stopped taunting you via Twitter, until this has gone further.
Initially and with the objective of paralyzing cash withdrawals and that their exchange did not collapse, it reached a rescue agreement with Binance. However, she recently tweeted that the deal was off, due to news reports about mishandling of client funds at FTX.
This prompted Zhao to decide to announce that Binance would liquidate his $2 billion in FTT, starting with $584 million in FTT on November 6, 2022. With this, chaos was more than guaranteed. And it is that, the pressure of a sale of 2,000 million dollars is unbearable for any exchange.
Besides, this caused the rest of the investors to start selling. All of this led to a further crash in the price of FTT. With this, many investors saw this move as a plot to eliminate their main competitor, although Zhao refuted the idea.
He has denied deliberately creating a liquidity crisis at FTX: “I spend my energy building, not fighting”, he tweeted on Nov. 7, but Tim Mangnall, whose firm Capital Block has advised both Binance and FTX, says it was a business move. “cunning” of Zhao, which allowed him “buy one of your biggest competitors for pennies.”
Will FTX users be able to recover their cryptocurrencies after the crash?
If FTX crashes (as it finally has), your customers will probably be hit the hardest. According to the Federal Deposit Insurance Corporation, FTX is not covered by the same protections as traditional banks. This is the big basic problem. So, it is quite likely that your money is in limbo right now, after the bankruptcy was announced.
During such a case, the court determines the portion that should be refunded to customers, the refund time, and the order of priority for refunds (another big issue as foot users are usually last). Courts often inform clients when they will be paid and how much of their deposit will be returned (spoiler alert, it won’t be all).
How the FTX vs. Binance Clash Affects the Cryptocurrency Industry
If the acquisition had been carried outwould have led to the merger of the largest centralized exchanges in the cryptocurrency industry.
As of November 9, 2022, Binance had around $49 billion in 24-hour trading volumes and FTX had around $4 billion, about a quarter of the overall market trading volume.
This problem has caused a great shock in the cryptocurrency market and has evaporated the confidence in it. Due to events, the Bitcointhe top cryptocurrency, plummeted more than 10% to lows not seen since November 2020.
Knowing this, centralized exchanges will be the most affected, especially triggering concerns about the market dominance of a few entities as opposed to the foundation on which cryptocurrencies are built.
After this type of falls in exchanges, actions such as fundraising, the sale of shares and the formation of joint ventures are contemplated.in order not to fall into the most absolute bankruptcy.
FTX has been known to contact other companies to form joint ventures, however to little avail. The insolvency decision means that FTX, Alameda Research and some 130 subsidiaries of the group they will take advantage of bankruptcy legislation to try to get the maximum possible return on the assets available to them.
The collapse of one of the main platforms in the sector leaves the funds of around a million users in the air.
With all this on the table, Binance will now have greater control in the world of exchanges and cryptocurrencies such as Bitcoin, and its figure (Zhao’s) will be more relevant when seeing the chaos that its movement has generated.