It was a jaw-dropping, curse-out-loud-at-work kind of day in the crypto world, which, even on its best day, is a volatile and weird place.
Here's the deal: Cryptos were down all morning on concerns about the solvency of FTX, the exchange platform founded by Sam Bankman-Fried, aka SBF (pictured above). He's an entrepreneur whose name often appears alongside descriptors like "wunderkind," "savior," white knight, "digital Warren Buffett," etc. He is, in short, a crypto celebrity (and a 30-year-old billionaire).
SBF had dismissed rumors about FTX's liquidity problems, even as its larger rival, Binance, said it would liquidate $580 billion it held in FTX's in-house token.
Then, in a truly unexpected twist, Binance said it had offered to buy FTX to resolve its liquidity crisis.
"This afternoon, FTX asked for our help," tweeted Changpeng "CZ" Zhao, the CEO of Binance, on Tuesday, citing a "significant liquidity crunch."
Pretty much no one saw that bombshell coming, given the public feuding and apparent bad blood between Bankman-Fried and Zhao.
"I'm actually shocked by this," an industry executive told me. "FTX failing ... would be kind of like a Lehman Brothers event for the space. But if they have been successfully bailed out, then that would probably head things off at the pass."
While the deal is still in flux, a tie-up between FTX and Binance would, the two largest crypto exchanges by volume, would mark a tectonic power shift in the industry.
The news prompted a brief recovery in digital assets but wasn't enough to calm anxious investors.
Bitcoin tumbled more than 10% Tuesday to hit a 52-week low around $17,600, according to CoinDesk. FTX's in-house coin FTT cratered to $5.24, losing 75% of its value. Other digital assets and equities tied to the industry also fell.
SBF is one of the most influential figures in crypto. Over the summer, as digital assets tumbled in the so-called "crypto winter," Bankman-Fried ponied up about $1 billion to bail out firms and shore up assets to try to keep the entire industry from collapsing. He also became the unofficial ambassador, peddling the promise of crypto to a skeptical mainstream financial world.
On Tuesday, though, the savior needed to be saved.
Fears over FTX and Alameda Research, Bankman-Fried's trading house, began last week after a report published by news site CoinDesk suggested that much of Alameda's balance sheet was made up of FTT, which is a relatively illiquid token.
Those fears were fanned by none other than Zhao, the head of Binance, who said his company would sell all of its holdings — about $580 million — in FTT, "due to recent revelations." His announcement spooked investors and caused FTT to plummet.
In essence, Bankman-Fried was getting a capital call for $580 million, and didn't have the liquidity to meet it.
What happens now?
There's a lot to figure out still, but we can expect digital assets to remain volatile until more details about the FTX-Binance deal are made public. Some analysts say the tie-up could accelerate the push toward crypto regulation by Washington.
Crypto may have just avoided its Lehman moment, but we're in uncharted territory now, and it's not clear who, if anyone, would be willing to shoulder the next bailout if Binance finds itself in trouble.
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