Bitcoin falls to 2-year low after Binance decides not to rescue FTX
Bitcoin prices fell below $16,000 for the first time since November 2020 after Binance decided not to go ahead with the FTX deal, Coin Desk reported. If FTX's insolvency was a surprise for many crypto investors, more revelations about the company would send shockwaves throughout the industry.
Cryptocurrencies began this week on a weak footing after crypto exchange FTX's founder Sam Bankman-Fried accused Binance of trying to destabilize this company. Two days later, Binance, the only other crypto exchange which could match FTX's stature in the market, stepped in to help.
As Interesting Engineering had then reported, Binance's offer was non-binding, and the company could walk away from the option of bailing FTX out if it found reasons in its due diligence. About 24 hours later, Binance's team had found enough evidence of "mishandled funds" not to get involved.
What happened at FTX?
The troubles at FTX came to light when Binance said it was offloading FTT, the former's digital token, over concerns about financial stability at the crypto exchange. Bankman-Fried, who tried to convince retail investors that the exchange's finances were okay, could only hold the fort for two days since mass withdrawals crunched its liquidity.
As Binance agreed to step in, subject to corporate diligence, FTX's legal and compliance staff quit on Tuesday evening, a Yahoo Finance report said, which is a clear signal that problems at Bahamas-based FTX ran deeper than previously thought.
According to the Wall Street Journal, the Securities and Exchange Commission was looking into investigating the crypto exchange's U.S. subsidiary, FTX.US. Experts told Yahoo Finance that FTX's troubles might have been due to co-mingling customer deposits with trading practices at Alameda Research, Bankman-Fried's trading firm.
Why is Bitcoin crashing?
Since Alameda Research has heavy exposure to FTT, it is likely that it will also undergo scrutiny. In the event of a sell-off, the trading firm might end up sending out large numbers of cryptocurrencies, which might not have enough buyers. As the market leader, Bitcoin is facing the heat and dropped to $15,625, its lowest in two years.
As Bitcoin prices have dropped nearly 20 percent in just a matter of days, miners might end up having to sell their mined BTC to cover the high costs of mining. The increased availability of Bitcoin in the markets might push prices down further, and it might settle down at $12,000 mark, a Coin Telegraph report said. Others fear that Bitcoin may drop even further and reach $9,000, where those who have left the crypto market earlier might want to get in.
Bitcoin isn't the only cryptocurrency to face the burn as Ether dropped by 15 percent while Solana, a cryptocurrency that Bankman-Fried has supported in the past, shed 46 percent in the last 24 hours.
The total market capitalization of cryptocurrencies has now shrunken to $805 billion, less than a third of their $3 trillion market cap just a year ago. This shows the high volatility that has always been associated with cryptocurrencies.
Binance, however, has another view of this turn of events. In a statement that followed after it announced that it was pulling out of the FTX offer, the company said,"Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient, and we believe in time that outliers that misuse user funds will be weeded out by the free market."
Will cryptocurrency rise again? As the market's largest player, Binance would surely hope so.
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