Cryptocurrencies extended their slide for a second day Wednesday as the market digested the potential collapse of popular crypto exchange FTX.
Prices were pressured to start the day and plunged in the late afternoon as Binance announced it’s walking away from a planned acquisition of FTX as a result of corporate due diligence and recent reports of mishandled customer funds and alleged U.S. agency investigations.
Bitcoin fell 11% to $16,106.25, its lowest level since November 2020, according to Coin Metrics. It reached its all-time high of $68,982.20 one year ago Thursday. Meanwhile, ether fell 11% to $1,155.01.
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The Bankman-Fried empire unraveled quickly after a report last week showed a large portion of Alameda’s balance sheet was concentrated in FTX Token (FTT), the native token of the FTX trading platform. After some light sparring on Twitter with SBF, Binance CEO Changpeng Zhao announced his company was offloading the FTT on its books, leading to a run on the popular FTX exchange and a liquidity crisis.
FTX counts some of the biggest names in finance — including SoftBank, BlackRock, Tiger Global, Thoma Bravo, Sequoia and Paradigm — among its investors.
FTT was down 44% Wednesday, after tumbling more than 75% the day before.
The Solana token also continued to fall. It was last down 40%, after plunging 26.4% on Tuesday. Alameda Research, the trading firm owned by Sam Bankman-Fried, who also runs FTX, was a big and early backer of the Solana project.
“Market factors such as providing SOL token liquidity as well as support for Solana ecosystem projects on FTX exchange has been an important driver for Solana’s success,” Bernstein’s Gautam Chhugani said in a note Wednesday. “This is an adverse event for the Solana ecosystem in the short run. Further, given FTX/Alameda’s balance sheet situation, there may be near term pressure on its Solana holdings, as the situation resolves.”
The bombshell is likely to set the crypto industry back, but to what extent remains to be seen. Analysts foresee further regulatory scrutiny of offshore exchanges, where the majority of crypto derivatives trading takes place. It’s also unclear how much financial contagion will spill into the rest of the market.
Additionally, Bankman-Fried had recently been lauded as a “white knight” in the industry as he came to the rescue of crypto services firms like BlockFi and Voyager that almost didn’t survive the crypto contagion of this spring.
For newcomers to the crypto market, he and FTX became the faces of the industry, securing the naming rights to the Miami Heat basketball team’s stadium last year, bringing Tom Brady and Giselle Bündchen on as ambassadors of the company, and becoming a megadonor to Democratic politics.
“Given the public-facing nature of FTX CEO Sam Bankman-Fried and the size of FTX, we believe that the week’s events could cause some loss of consumer confidence in the crypto industry, beyond that seen in the aftermath of the 3AC, Celsius, and Voyager events that took place earlier this year,” especially if contagion takes hold and crypto prices keep dropping, KBW analysts said in a note Tuesday. “It may take time for customers to regain trust in the industry, broadly speaking (and we think regulation could help this).”