Cryptocurrencies extended their slide for a second day on Wednesday as the market absorbed the possible collapse of popular crypto exchange FTX.
Prices were under pressure early in the day and tumbled late in the afternoon as Binance, the largest global exchange by volume, announced plans to acquire Sam Bankman-Frieds FTX following due diligence and recent reports of mishandled client funds and suspected Investigations by US authorities into FTX abandoned.
Bitcoin fell 12% to just under $16,000 before 4:30 p.m. ET, hitting a low not seen since November 2020, according to Coin Metrics. It hit its all-time high of $68,982.20 on Thursday a year ago. In the meantime, ether fell 14% to $1,128.87.
The Bankman-Fried empire quickly unraveled after a report last week showed that a large portion of the balance sheet at Alameda Research, the trading firm where Bankman-Fried was also CEO, was focused on FTX tokens (FTT), the native token of the FTX trading platform.
After a bit of sparring on Twitter with Bankman-Fried, Binance CEO Changpeng Zhao announced that his company would be moving FTT off its books, prompting a run on the popular FTX exchange and a liquidity crunch.
FTX counts some of the biggest names in finance – including SoftBank, BlackRock, Tiger Global, Thoma Bravo, Sequoia and Paradigm – among its investors.
The FTT tumbled another 63% on Wednesday after falling more than 75% the previous day.
That Solana Token also fell further. It was last down 45% after falling more than 26% on Tuesday. Alameda Research, the trading company of Sam Bankman-Fried, who also runs FTX, was an early supporter of the Solana project.
“Market factors such as providing SOL token liquidity as well as supporting Solana ecosystem projects on the FTX exchange have been a key driver of Solana’s success,” Bernstein’s Gautam Chhugani said in a note on Wednesday. “This is a negative event for the Solana ecosystem in the short term. Given FTX/Alameda’s balance sheet position, Solana holdings may come under short-term pressure once the situation resolves.”
The bomb will set back the crypto industry. Analysts foresee further regulatory scrutiny of offshore exchanges, where the bulk of crypto derivatives trading takes place. It’s also unclear how much financial contagion will spill over to the rest of the market.
Additionally, Bankman-Fried, known as SBF, was recently hailed as a “white knight” in the industry, coming to the rescue of crypto services firms like BlockFi and Voyager that succumbed to crypto contagion last spring.
For newcomers to the crypto market, SBF and FTX became the faces of the industry, securing the naming rights to the Miami Heat basketball team’s stadium last year, signing Tom Brady and Giselle Bundchen as corporate ambassadors, and becoming a mega-donor to Democratic politics.
“Given the public nature of FTX CEO Sam Bankman-Fried and the size of FTX, we believe the week’s events could result in some loss of consumer confidence in the crypto industry, aside from what happens after the 3AC, Celsius, and Voyager events that took place earlier this year,” KBW analysts said in a note on Tuesday, especially if panic spreads and crypto prices continue to fall. “It may be some time before customers regain confidence in the industry at large (and we think regulation could help with that).”