A notice appeared on the official FTX website last night informing users that withdrawals and deposits have been suspended indefinitely.
Indeed, Binance’s attempt to rescue the exchange has failed.
It was Binance itself that announced this on its official Twitter profile.
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
CEO Changpeng CZ Zhao actually warned that the proposed purchase would be tied to the outcomes of due diligence.
Yesterday, the Binance team completed due diligence on FTX’s accounts, and then decided to pull out of the deal.
Indeed, it has stepped it up a notch because in the official tweet communicating the withdrawal from the purchase, it added that in addition to the negative outcome of the due diligence, there are also other reasons that prompted it to back out: improperly managed customer funds and alleged investigations by some US agencies.
Summary
SEC and CFTC on the case of FTX and Sam Bankman-Fried
According to Bloomberg‘s disclosure, both the SEC and the CFTC are looking into the FTX matter.
The SEC is the agency that oversees the securities markets, i.e., stocks in particular, while the CFTC oversees the commodities market. Although FTX is not a publicly traded company, the two agencies are also concerned with market disruption and investor protection, so they have their own reasons for investigating.
It appears that the two agencies’ investigations are focusing primarily on the very management of the exchange’s clients’ funds, as also highlighted by Binance.
However, Bloomberg also reports that these investigations allegedly began as far back as several months ago, specifically regarding cryptocurrency lending by FTX US.
Added to this is the fact that the US Department of Justice is also reportedly investigating FTX, according to what the Wall Street Journal revealed.
The FTT token
The news of Binance’s refusal to buy the company sent the price of FTX’s FTT token plummeting.
FTT fell below $3, and in the night it even touched $2. It is enough to mention that only two days ago it was still at $22, so it has lost practically 90% of its value since then.
Indeed, compared to the all-time high price of $84 touched in September last year now its value is 97% lower.
This is a real implosion, perhaps a definitive one. Indeed, at this time there is no sign that would realistically suggest any kind of strong rebound.
The risks of failure
At this point, the possibility seems to be gaining momentum that we are moving toward a procedure similar to the one followed by Celsius in June, and which led the company to file for bankruptcy.
The indefinite suspension of withdrawals means that the company no longer has sufficient coverage for customer deposits, to the point where it can be assumed that customer-owned funds held by FTX have actually been spent. In that case, there seems to be no way to give them all back quickly.
For now, the company has not yet publicly admitted that it is insolvent, but the reality is that it is. Not least because it appears that in recent days customers have taken several billion dollars out of its coffers, and there is an even bigger hole in its balance sheet.
Moreover, the market seems to have already conceded its judgment, given FTT’s price performance, calling bankruptcy likely.
Sam Bankman-Fried worried about his FTX
In such a context stands out the deafening silence of the company’s co-founder and CEO Sam Bankman-Fried (SBF).
Not only has he not tweeted for two days now, but he has also deleted a number of tweets from the past few days. In particular, he removed just the one from Monday in which he claimed, probably lying, that the company had all available funds on hand to meet all of their customers’ withdrawal requests.
He wrote:
“FTX has enough to cover all client holdings. We don’t invest client assets (even in Treasurys). We have been processing all withdrawals, and will continue to be.”
But there is more.
The crew is abandoning ship
Yesterday, Alameda Research’s website was made private, meaning no longer accessible to the public. Alameda Research is SBF’s other company, the one that deals with investments and is probably the root cause of FTX’s problems.
In addition, Alameda Research CEO Caroline Ellison has removed the company’s CEO title from her Twitter profile.
Added to all this is the rumor that most of FTX’s legal team has quit.
It is as if they are already abandoning a sinking ship.
There is really nothing to give hope for a possible positive solution soon for this situation.
The only glimmer of light comes from Justin Sun, the founder of Tron.
Further to my announcement to stand behind all Tron token (#TRX, #BTT, #JST, #SUN, #HT) holders on #FTX, we are putting together a solution together with #FTX to initiate a pathway forward. @FTX_Official
— H.E. Justin Sun 孙宇晨 (@justinsuntron) November 10, 2022
In fact, Sun has publicly stated that they are putting together a solution together with FTX to start a path forward. There are, however, no further details on this.
Tether (USDT)
Just as with the Celsius bankruptcy, there have been rumors in recent days about some kind of Tether involvement in FTX.
However, the company that issues and manages USDT is instead letting it be known that Tether has absolutely no claim whatsoever to either FTX or Alameda Research, such that it is in no way exposed to these two entities.
Tether tokens continue to be backed 100% by reserves and assets that exceed liabilities in value.
Often at these junctures, someone brings up the story that Tether may have something to do with what bad things are happening in the crypto markets, but usually Tether is unrelated. After all, USDT continues to be worth about $1 at all times.
Background: Sam Bankman-Fried admits mistakes with FTX
Reuters has revealed some interesting background to this whole affair.
In fact, SBF reportedly admitted to his team that he made a mistake in announcing the alleged bailout of Binance, perhaps because he was aware that the outcome of the Due Diligence announced by CZ would be negative.
Nor would it have been the only mistake.
Reuters says SBF months ago made mistakes such as bailing out other crypto companies as the market collapsed.
For example, in September they tried to raise $1 billion in funding to save the failed Celsius Network, but the initiative then failed.
However, other similar initiatives did go through, but according to Reuters they would lead to a series of losses that eventually brought FTX ruin.
Other background revealed by Reuters concerns the fact that for months Binance and FTX had been competing to take market share from each other. The problem is that Binance is the largest and strongest exchange in the crypto markets, so challenging it means risking a lot of hurt.
In 2019, or six months after FTX launched, Binance bought 20% of the company’s shares by investing about $100 million. But within 18 months their relationship deteriorated, ending with yesterday’s refusal to proceed with the acquisition.
FTX grew very rapidly, and by now it appears that CZ considered it a real competitor.
It is therefore possible that Binance played some kind of role in this affair, which goes far beyond the mere attempted bankruptcy in recent days.
