Cryptocurrencies fall after FTX-Binance turmoil spooks investors

SINGAPORE/LONDON, Nov 9 (Reuters) – Cryptocurrencies saw a second day of sharp declines on Wednesday, as investors continued to fret about the stability of the sector and the financial health of major exchange FTX despite plans for a rescue deal from big rival Binance. .

Crypto giant Binance signed a nonbinding agreement on Tuesday to buy FTX’s non-US unit to help cover a “liquidity crunch” at the rival exchange.

The proposed deal between high-profile rivals followed week-long speculation about FTX’s financial health that snowballed into $6 billion of withdrawals in the 72 hours before Tuesday’s deal, raising questions about the solvency of one of the largest crypto exchanges in the world.

FTX and Binance did not disclose the terms of their agreement, and the market is facing new uncertainty about whether it will continue.

Bitcoin, the largest cryptocurrency by market value, was down 5.3% on the day at $17,559 at 1107 GMT, after a 10% plunge on Tuesday that marked its worst day since mid-August. Ether, the next largest, extended Wednesday’s losses to its lowest since July.

FTT, a smaller token tied to FTX, fell a further 23%, after plunging 72% on Tuesday. Its market cap fell below $600 million, down from around $3 billion at the start of the week, according to CoinGecko data.

“What if the deal doesn’t go through, or (CEO Binance Changpeng Zhao) comes back and says I will give 10c on the dollar. That’s a blind spot the market is not ready,” said Scottie Siu, investment director at Axion Global Asset Management in Hong Kong.

The turmoil at FTX is the latest sign of trouble in the fast-moving world of cryptocurrencies. Crypto prices have slumped so far this year as a broad downturn in the financial market prompted investors to ditch riskier assets. After rapid growth in 2020 and 2021, bitcoin fell by around 62% in 2022.

Kami Zeng, head of research at Fore Elite Capital Management, a Hong Kong-based crypto fund manager, called this another “alarm warning” for the market and said investors should be cautious for a while.

“… the whole thing still looks like a dark hole. We are not sure how contagious this can be, but I believe that the institution must show evidence of backup ASAP. Trust does not heal before that,” Zeng said.

Binance coin, the token used in Binance, is also not spared. The world’s fourth largest cryptocurrency, with a market value of close to $50 billion, was at $299, down 8.8% on the day.

RISK OF CONTAGION

Some analysts drew parallels with the collapse of the stablecoin TerraUSD, and its linked token Luna, earlier this year, which was set off a series of bankruptcies in Singapore by the Three Arrows Capital fund and US fintech firms Voyager Digital and Celsius.

FTX allows users to buy and trade cryptocurrencies, which can be implemented on the platform.

CEO Sam Bankman-Fried said his team is working on clearing the withdrawal backlog, although the uncertainty in the market about the status of the bailout and the depth of the problem kept traders nervous.

“Crypto players react faster to news and rumors, which in turn creates a liquidity crisis faster than would be seen in traditional finance,” said Fabian Astic, head of DeFi and digital assets at Moody’s Investors Service.

He attributed this to “limited transparency and uneven regulation in cryptofinance”.

It is not clear how the regulator will consider the deal between the two crypto exchanges. US antitrust enforcers may insist on looking into the merger, antitrust experts say.

Binance’s US operations with FTX are not part of the deal, said Bankman-Fried, who is from California but lives in the Bahamas, where FTX is based.

Binance is also being investigated by the US Department of Justice for possible violations of money laundering rules, Reuters reported last week. It is one of a series of investigations this year into Binance’s troubled history with financial regulatory compliance.

Singapore state investor Temasek Holdings, a shareholder of FTX, said in an emailed comment to Reuters: “We are aware of the progress between FTX and Binance, and are conducting FTX in our capacity as a shareholder.”

Bitcoin until 2022

Reporting by Selena Li and Tom Westbrook; Additional reporting by Georgina Lee, Anshuman Daga and Vidya Ranganathan; Written by Vidya Ranganathan; Editing by Bradley Perrett and Toby Chopra

Our standards: Thomson Reuters Trust Principles.

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