FTT, Bitcoin crash EXPLAINED: Binance acquires FTX?

Hi, it's Giovanni. We have some big news to cover today. Binance just announced its intention to acquire FTX and help with a liquidity crunch. FTX is one of the biggest companies in the crypto space and it is about to get bailed out by its main rival, which is Binance. So the market has taken a heavy blow. Bitcoin is down around 12%, Ethereum down 18% at the time of this recording. So the biggest losers are ftt, which is the FTX native token, and Solana, which is another token associated with ftx. I'm here with Ray Salmon, head of market at Cointelegraph, to make sense of this chaotic situation and try to explain what is going on in the market and what we should expect in the days and hours ahead. So how are you doing today, Ray?

Pretty good, thanks for having me. Let's break it all down and see if we can identify who, what kicked off this selloff in the market and FTX basically capitulating and being acquired by Binance and whether that's a good or a bad thing.

So first of all, what is your impression of what happened today around, around ftx, around Binance that is about to acquire ftx? What are your impressions?

I know that the market is surprised and a lot of investors are surprised and that's reflecting in the price action today. But there was clearly something going on with the books at FTX and Alameda. So that kind of exclusive report that showed the balance sheet which CoinDesk published I think on November 2nd, 3rd or 4th, that raised a lot of questions in the mind of investors and probably VCs in the space and you know, in the forefront or I guess it's a, in the, in the background is our trauma with Luna, you know, with Luna Terra, Luna Classic and Celsius. So you know, fear basically appeared to kind of translate into a bank run on all assets held on FTX Exchange. So we saw a lot of withdrawals of Ethereum, Bitcoin and other assets leaving the exchange thanks to, you know, all the on chain data. Analysts were also able to track FTX wallets and Alameda wallets to see what were their flows, you know, where were they sending money, what were they cashing out, what type of money, what, what funds were going into ftx. So it just kind of painted a very clear picture that something is not right, that there's a risk of insolvency. There's questions around where they doing like cowboy trading, where they're taking user funds and collateralizing them to go make other trades. You know, we've kind of seen this. We've been at this party before, we've seen this show. We know how it ends. So, yeah, seeing FTT fall apart was shocking. Seeing Solana Price fall apart was shocking. The one thing I didn't expect was for CZ and Binance to, you know, make a bid on, on ftx. I think that's, that's really the one thing I didn't expect to happen. And hopefully that's going to, you know, protect the entire market from crumbling as prices did during Luna Terra's implosion.

Yeah. Because we need to also specify that this deal hasn't gone through yet. Right. So apparent Binance has the right to pull out at any moment. So what are your, what are your thoughts on that?

I think that's still an element of risk to keep front of mind. So it's possible that CZ and others on his team might look at FTX's books and be like, wait a minute, I thought we were just, you know, absorbing a billion or 2 billion or 3 billion and then getting this great company and absorbing your market share and all of your customers and killing ftx. Token we got rid of a competitor, basically. Maybe that won't be the case, Right. When they look over the books, maybe there's a lot of toxic debt that just can't be covered and CZ and Binance back out and let FTX fall in on itself and let's see what impact that has on the wider market. But when the Binance news broke, SBF broke it, CZ broke it. We saw FTT immediately do like a 30% upshoot, as did Solana. BNB went on like a 17% rally. So that was good news. Right? And it looked like Bitcoin reclaimed 20,000 and rallied all the way up to 20,600. It looked like the market was going to be stable and people, maybe this was a buying the dip opportunity. Right? But then at the same time, within the hour, leaks came out that SBF was seeking out private investors. And this is all unconfirmed information. This is stuff leaking out from large follower accounts on Twitter. Right. But information leaked out that SBF was going to private investors in Silicon Valley trying to rustle up a billion. Okay, that's not so bad. We can backstop our debt with a billion. That's cool. Then that number became 3 billion, right? And then two hours later, all of a sudden, the same source is saying, no, SBF was looking for 6 to 10 billion. Right? And if you remember Just yesterday when asked about, you know, their solvency and whatnot, Caroline, CEO of Alameda said that, you know, what you see on these leaked balance sheet is not all of our assets. Alameda has 6 to 10 billion. That's not reflected on that sheet. Meaning to say we're liquid, we can cover our debts if we want. Nothing to see here, move on. Right, so think about that tweet and then think about the leaks today. That's saying SBF was looking for 3, 4, 5, 6 billion to plug this hole. Right. Markets are reading that and at the same time as we're reading that sold price drops down below 25 and below 22, FTT loses its support and goes all the way down to like three. Currently it's at 520, but I don't know if it's going to make it. Bitcoin drops to a near Yearly low at 17,133. Ethereum drops to 1200. Right. So that just shows that, you know, this supposed deal between Binance and sbf, it is tentative. Right. And everyone's still on the rocks and if that deal blows up, the market's probably going to blow up also.

Yeah, I mean these are all concerns that need to be really taken seriously. Although to me it's very strange that all this blow up that we are witnessing seem to have started just from basically fud, because that was how it started. So let's go back a little, a little bit. A couple of days ago CZ posted a tweet where he was saying that they were getting rid of this bunch of FTT token. They were basically liquidating their position in FTT token and that's what sparked all these concerns and fear around the possibility of FTX being insolvent. Beside that report that was published by Coindesk where they were saying that yeah, a lot of the assets of Alameda were in FTX token, but still there were no actual proof that Alameda or FTX were insolvent or there was something actually wrong in there. It's all, it was all based on fear and, and concerns. Wouldn't you agree with, with this reading?

I think that's where, you know, the after effect of Lunaterra and Celsius come into play because possibly in the past the market's belief in SBF as our savior. SBF has this reputation. He claims to have saved crypto when Luna blew up and when Celsius blew up and he acquired Voyager and you know, FTX was sending cash here and there to shore up people that were in Trouble. I think BlockFi also was a recipient of FTX funds and then FTX was doing all these mergers and like acquisitions, which was kind of like giving you the illusion that they had deep liquidity and that they were absorbing more market share from platforms that were fully functional and had large, had like a large user base. So this was more of like, okay, this is confirmation that this company is fundamentally sound and a leader in the crypto space. Right. But I think dialing back to what you said, whether or not it's fud, sure, had Luna and Celsius not happened, then it might have been easier to write that office fud, just like Mashinsky at Celsius, wrote off all criticism about the high interest, the sustainability of that high interest, Celsius's books and their wallet transactions. He was able to allay all that suspicion for months on end. And even when it got intense, he was still able, or Celsius was able to call it FUD for three weeks in a row until they actually blew up. Right. So I think what makes it, what made this a more actionable event for investors, which basically translated to, you know, billions of dollars leaving ftx exchange in 24 hours. Right. What made what, what kind of catalyzed that strong conviction on part of investors was the bad taste in their mouth from Celsius and Luna. Because what we saw with Celsius and Terra is that they were cooking the books. So when I saw that balance sheet, just that one, that, that itty bitty little one, when I saw that from Google Coindesk, it immediately gave me discomfort in my stomach because I had seen that before and anyone else who's an investor had also seen that before and we kind of know where that goes, right? So I think that's why things kind of escalated so quickly in this case.

Yeah, that's so sad. And it kind of sheds this very dark shadow on all these centralized entities in the space, which seem not to be worth the trust of users and investors in general. What do you think is going to be the long term impact of this event? Let's say how is it going to impact the way people see, look at centralized exchanges? Is it going to be a catalyst for, for people to say, not your keys, not your Bitcoin, and just keep their assets in cold storage?

Of course. And CZ has become Emperor Palpatine. You know, CZ runs the entire crypto space now in a way, just like Palpatine ran the Senate, you know, and then took over the Senate and then ran the entire Galaxy. Right. So what's the rebellion going to be that overthrows Palpatine or Chenping Zhao? I don't know. I don't really personally think that he's a bad guy.

It's actually quite fascinating to see that now CZ has taken this position of power and we're going to be looking at how he's going to handle it. He is going to be the face representing the space among regulators, on the public and so on. So we'll see. Binance recently just now announced that they are going to use new stringent sort of practices when it comes to. When it comes to transparency. CZ announced that Binance will do proof of reserve very soon, calling for maximum transparency. Do you know, do you have an idea about what this would mean?

The more transparency, the better. Clearly that is what we need in this space because a lack of transparency and greed has always led to calamity. Investors should stop believing in saviors and messiahs and cryptocurrency. We made that mistake with Elon Musk. We made that mistake with Danieli of Wonderland. We made with Do Kwon. You know, the list goes on and on and on. Somewhere in their organization, mistakes happen. And who foots the bill for those mistakes? It's you, the retail investor.

I think this was a good roundup of the situation, but it's a very fluid situation, a very rapidly changing situation. So things might change abruptly in the next hours as it happens in the crypto space. So I want to remind our audience to keep tuned with cointelegraph checking our coverage of these events. And we're gonna see whether FTX is gonna survive, whether this deal, this acquisition that CZ has announced is gonna go through, and what are gonna be the impacts on the market, on the crypto markets. So thanks a lot for everyone who is watching and thank you, Ray, for your insight. It was invaluable.

Anytime. Yeah, pleasure to be on.