Cryptocurrencies were jittery and groping for a floor on Wednesday, after a sharp and broad drawdown when nerves about the stability of exchange FTX turned to a rush of withdrawals and ultimately a bailout deal from bigger rival Binance.
Bitcoin, the biggest cryptocurrency by market value, was down 2% at $18,250, after a 10% plunge on Tuesday that marked its worst day since mid-August. Ether, the next largest, has lost nearly 18% since early Tuesday. The market focus was, however, on FTT, the token tied to FTX, whose financials have been the source of market angst since last week. FTT collapsed by 72% on Tuesday and was down a further 5% at a two-year low of $4.61 on Wednesday.
Pressure on FTX came in part from Binance CEO Changpeng Zhao, who had said on Sunday that Binance would liquidate its holdings of the rival’s token due to unspecified “recent revelations.” Market participants were then stunned when Binance signed a nonbinding agreement on Tuesday to buy FTX’s non-U.S. unit to help cover what it called a liquidity crunch.
The deal between high-profile rivals Zhao and Sam Bankman-Fried, FTX’s CEO, followed week-long speculation about FTX’s financial health that snowballed into $6 billion of withdrawals in the 72 hours before Tuesday’s deal.
“The contagion will play out in the next few days and weeks,” said Zann Kwan, board advisor at Raffles Family Office and member of Singapore association ACCESS, which includes participants involved in cryptocurrency and blockchain, together called decentralised finance (defi).
“Alameda is a big market maker in the defi market. More things will unfold,” she said, referring to Alameda Research, a trading firm founded by Bankman-Fried that has close ties with FTX. Bankman-Fried said his teams were working on clearing out the withdrawal backlog, though uncertainty in the market about the bailout’s status and the depth of problems kept traders nervous. “This may fuel further contagion throughout the crypto market …,” said Mads Eberhardt, crypto analyst at Saxo.