Crypto markets teeter with FTX after Binance abandons bailout

  • Binance walks away from FTX bailout; fall of bitcoin
  • FTX’s native token is trading near record lows
  • Investors expect the turmoil to get worse before it gets better

HONG KONG/SINGAPORE, Nov 10 (Reuters) – Cryptocurrency markets suffered heavy losses on Thursday, with bitcoin struggling to recover from a two-year low as investors worried about a fall from the implosion of the crypto exchange FTX and the future of the industry.

Bigger rival Binance walked away from a bailout of FTX on Wednesday. FTX chief Sam Bankman-Fried said he was “exploring all options”, but the fading of hope for a rescue left FTX reeling. A message on the FTX website said: “FTX is currently unable to process withdrawals. We strongly advise against making deposits.”

The focus is on the unknown extent of customer losses and the hit to sentiment from the latest and possibly biggest collapse in an industry that has become a minefield for investors.

FTX’s native token, FTT is down 90% this week and is trying to stay around $2 — not too high from its record low of $1.50. Bitcoin fell below $16,000 for the first time since late 2020 overnight and finally $16,700.

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Binance backed out of an unencumbered offer to buy FTX after due diligence. Another exchange that declined to participate was OKX, which said it had also been approached by Bankman-Fried describing debts of $7 billion that needed to be quickly covered.

“Even Elon Musk can’t make a deal with $7 billion liability within a few hours of negotiation. That’s too much for us,” Lennix Lai, director of financial markets at OKX told Reuters.

“(It’s) a big hole to plug,” he added. “The dagger will continue to hang in the crypto market, as long as the outlook for the fate of FTX remains unclear.”

The seeds of FTX’s downfall were sown months earlier, by mistakes made by Bankman-Fried after he stepped in to save other crypto firms, according to interviews with several people close to Bankman-Fried and communications from FTX and Binance.

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‘CRISIS OF TRUST’

There were also early signs that the fallout could spread beyond the crypto markets, with jittery stockmarkets sliding on Wall Street overnight.

“A major exchange that fails – that’s on a different level,” said Danny Chong, CEO of decentralized finance company Tranchess, which has potentially wider consequences than the failure of the stablecoin TerraUSD and crypto hedge fund Three Arrows Capital this year.

“People’s funds, including market makers, are still in FTX,” he said. “Just when people thought that crypto winter might not last… with another episode like this.”

The US securities regulator is investigating FTX.com’s handling of customer funds and crypto lending activities, according to a source with knowledge of the matter.

Bloomberg reports that the US Department of Justice is also looking into the mess. A DOJ spokesman declined to comment.

Investors have already written off funds plowed into FTX. Venture capital fund Sequoia Capital wrote down its $150 million exposure to zero on Wednesday. Canada’s Ontario Teachers Pension Plan, Tiger Global and Japan’s Softbank are also FTX investors.

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Broker Robinhood ( HOOD.O ) said it had no direct exposure to FTX, but Bankman-Fried held a stake in the company and its shares fell sharply on Tuesday and Wednesday.

Most crypto players remain bullish about the long term, but are braced for further falls in the near future. Bitcoin’s 20% loss this week is comparable to June’s drop when Three Arrows Capital was stressed.

“What makes this new phase … problematic is that the number of entities with stronger balance sheets that are able to save those with low capital and high leverage is decreasing,” the analyst at JP Morgan said in a note to clients.

“Now that the balance sheet strength of Alameda Research and FTX is being questioned just a few months after being thought of as strong balance sheet entities, it is creating a crisis of confidence.”

Reporting by Georgina Lee in Hong Kong and Tom Westbrook in Singapore; Editing by Shri Navaratnam

Our Standards: The Thomson Reuters Trust Principles.

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