FTX vs. Binance Showdown: If Enough People Think That There Will Be a Bank Run, Then There Will Be a Bank Run [Update: Binance is Buying FTX]

Rohail Saleem
FTX Binance

This is not investment advice. The author has no position in any of the stocks mentioned. Wccftech.com has a disclosure and ethics policy.

With memories of the early summer crypto crash, precipitated by the utter collapse of Terra’s ecosystem, still fresh in the collective psyche of investors, rumors of a bank run on the crypto exchange FTX have captivated a much more cautious and weary audience. At the heart of this showdown lies a very public feud between the founder of Binance, Zhao “CZ” Changpeng, and the owner of FTX, Sam Bankman-Fried. With the stability of the entire crypto sphere hanging in the balance, the stakes cannot be any higher.

The Backstory

Toward the start of November, Coindesk cited an internal FTX document that suggested financial vulnerabilities in the balance sheet of Sam Bankman-Fried’s other major enterprise, Alameda Research. While FTX is the world’s second-largest crypto exchange after Binance, Alameda Research is primarily concerned with crypto trading activities. As of the 30th of June, Alameda had $14.6 billion in assets. However, as per the document, FTX’s FTT token constituted the largest asset on Alameda’s balance sheet, including $3.66 billion in unlocked FTT as well as $2.16 billion in FTT collateral. As a refresher, holders of the FTT token receive rewards and discounts on FTX’s trading fees. FTX maintains FTT’s value by using a third of its trading commissions to buy back FTT coins, which are then burnt.

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Of course, Alameda not only had FTT-denominated assets but liabilities as well. For instance, Coindesk cited $292 million in “locked FTT” that is part of Alameda’s total liabilities worth around $8 billion.

With so much of Alameda’s balance sheet comprising of the FTT tokens, it does increase the trading arm’s financial vulnerabilities, which then pose negative ramifications for its sister enterprise, the FTX Exchange. For instance, according to BitcoinMagazine’s Dylan LeClair, Alameda has FTT assets worth $5.82 billion, while the market cap of the FTT token on the 03rd of November was just around $3.35 billion.

Binance’s Zhao “CZ” Changpeng then picked up Coindesk’s report and tweeted that the exchange will liquidate “any remaining FTT on our books” while adding the qualifier that this liquidation will take place in a manner so as to minimize “market impact.”

In a separate tweet, CZ then justified this action as “post-exit risk management” while citing the example of Terra’s LUNA crash earlier this summer.

FTX then hit back by suggesting that Binance was simply trying to go after the exchange due to peer rivalry.

FTX also assured investors that it could easily cover all client holdings, with GAAP audits certifying over $1 billion in excess cash. FTX has also offered to buy Binance's FTT holdings.

Despite these assurances, investors continue to withdraw liquidity from the FTX Exchange, hammering the FTT token in the process.

Source: https://dune.com/1chioku/sweet-home-alabama

According to Dune Analytics, FTX has suffered a net outflow of over $147 million over the past 24 hours.

Source: https://coinmarketcap.com/currencies/ftx-token/

Moreover, the FTT token is down over 20 percent in the past 24 hours.

What Is Next for FTX and Its FTT Token?

There are isolated reports that FTX is blocking some withdrawals.

If you want instantaneous withdrawals, apparently, the best way would be to withdraw your assets to Solana and then Wormhole to Ethereum.

The Twitter thread above details some of the most important developments that have taken place recently in the FTX vs. Binance saga. Short bets against FTT are soaring.

Readers should note that it remains unlikely that FTX will go under. However, bank runs are essentially a self-fulfilling prophecy. If enough people believe that there will be a bank run, then most definitely, there will be a bank run. Trade accordingly.

Update: FTX Has Apparently Halted Withdrawals

In what is never a good sign, The Block has cited the Etherscan data to suggest that FTX seems to have halted withdrawals for now. This comes amid sporadic reports that users' withdrawal requests are not being processed by FTX. We are waiting for the exchange's official comments on this problematic development.

Update 2: Binance is Buying FTX!

Bloomberg is now reporting that Binance has reached an agreement to purchase the troubled crypto exchange operator, FTX. The terms of the deal have not been disclosed.

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