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Market Analysis Report (09 Nov 2022)

Date:

Leading cryptocurrency exchange Binance has signed a letter of intent to acquire the fourth-largest cryptocurrency exchange by trading volume, FTX, in a deal that came after an insolvency crisis hit FTX in what has been deemed cryptos ‘Lehman Brothers’ moment.

The announcement started when the billionaire founder of FTX, Sam Bankman-Fried (SBF), stated Binance had “come to an agreement on a strategic transaction with Binance” for FTX. A few minutes later, Binance CEO Changpeng Zhao announced FTX asked Binance for help with a “significant liquidity crunch.”

As a result, CZ announced Binance signed a letter of intent to fully acquire FTX and cover the liquidity crunch “to protect users.” Data from CryptoCompare’s September 2022 Exchange Review shows that, in September, Binance traded $541 billion worth of spot crypto to secure its spot as the leading exchange, while FTX traded $51.8 billion.

Circle co-founder Jeremy Allaire likened FTX’s liquidity crisis to the Lehman Brothers’ collapse in 2008. Several cryptocurrency exchanges, including Coinbase and Kraken, have distanced themselves from FTX, clarifying they had no exposure to the exchange.

Coinbase’s CEO Brian Armstrong has revealed the exchange “had a number of conversations with people” over a potential deal with FTX, but said, “there’s reasons why that would not make sense and we’re not quite at liberty to share the details right now.”

Notably, FTX hit a valuation of $32 billion at the start of this year, backed by blue-chip investors, including BlackRock, Canada’s Ontario Teachers’ Pension Plan, and SoftBank.

Its troubles started earlier this week after Binance revealed it was offloading its holdings of FTX’s token, FTT, shortly after a leaked balance sheet raised concerns regarding the financial stability of Alameda Research, a quant trading firm associated with the exchange.

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