Binance is the biggest crypto exchange, with a 7 trillion crypto exchange volume traded last year. Accounting for over 50% of all crypto transactions. FTX on the other hand is an exchange that was created by Sam Bankman-Fried (ex-billionaire) and is the fastest-growing crypto exchange we’ve seen. First most likely known through partnerships with Steph Curry, Tom Brady, etc.
It’s easy to understand that these two companies are heavy competitors to one another.
So where did it go wrong?
It is important to understand that Binance was an early investor in FTX but upon the massive growth, Binance at some point looked to exit on their position.
On November 6th, 2022, the owner of Binance CZ tweeted that as part of their exit from FTX last year they received roughly USD $2.1 billion equivalent in cash (BUSD and FTT) and that due to recent ‘revelations’, they’ve decided to liquidate any remaining FTT that they may have.
On November 5th, 2022, a crypto whale bot on Twitter noticed a massive transaction of close to 23 million FTT tokens (USD $585 million at the time of transaction) in Binance. This was soon confirmed by CZ that this was part of the plan to liquidate upon what he learnt from a previous collapse in Tera Luna to ensure Binance isn’t involved with anyone that potentially can fall similarly.
Of course, this series of events saw the FTT token value plummet.
Sam then responded to Binance saying that if they are in fact looking to sell or liquidate their FTT token, they would be happy to have Alameda Research (sister company to FTT) buy their tokens to minimise market impact at USD $22 and that everything with their balance sheet was more than fine.
However, this wasn’t the case.
In an article written by coin desk on Alameda research’s balance sheet, it stated that Alameda research had around USD $14.6 billion in their balance sheet as of June. Sounds good right? Well not exactly.
In the same article, it mentioned that most of the assets (around USD $8 billion) were held in their native toke FTT. Something that they essentially can just print.
So, what does this mean?
With a market cap of USD $2.3 billion before the collapse, it simply means that if FTT were to liquidate everything tomorrow, it wouldn’t even be close to reaching the value they claim to be.
Since then, people have continued to take out their money from FTX (until they halted it) and leading to FTX identifying a liquidity crunch within their exchange.
As of Tuesday, this week, Binance has stated a Letter Of Intent (LOI) to (unofficially) buy FTX to help them out. However, since then talks have fallen through and Binance is officially no longer presuming the potential acquisition of FTX.
I believe that momentum is one of the strongest forces in the world and you don’t want to be caught on the bad side of it as this series of events has been for FTX.
This is just a theory but how does this sound? Binance started a rumour, made a threat, and ended up coming close to buying its biggest competitor overnight. However, upon understanding how this looked, backed out and remained the number one exchange.
Since then, FTX has filed for Chapter 11 bankruptcy and Sam Bankman-Fried has resigned as CEO of FTX. I truly believe that this is just the beginning and a lot more is to come.
