FTX is in trouble, and things are falling apart for the exchange that was once ranked amongst the top three industry players.
The deal with Binance has collapsed, and the websites of Alameda and FTX are down.
Cryptocurrency investors are now bracing for a contagion similar to Terra’s collapse back in May.
Sam Bankman-Fried’s empire was built on a shaky foundation; now, it is crumbling, leaving thousands of investors in limbo.
Following the report that FTX was going through a torrid financial patch, Bankman-Fried took to Twitter to announce that all was well with the exchange and that the unfolding events were rumours from a competition. Hours after giving the assurance to users, FTX capitulated and disclosed a non-binding agreement to be acquired by Binance amid the mass dumping of the FTT tokens.
Binance pulled out of the agreement to buy FTX after carrying out its due diligence on the company’s books, citing allegations of financial impropriety.
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” read a statement from Binance.
As if things were not bad enough, the bulk of FTX’s legal and compliance team resigned from their roles. The move casts a large shadow of gloom for the firm once hailed as the shining light for the industry.
The websites of Alameda, FTX ventures, and FTX.com are down as of press time which industry players are construing as a sure sign of insolvency. Customer funds on the exchange are stuck while desperate investors have resorted to selling their funds for pennies on the dollar through over-the-counter transactions (OTC).
A Bloomberg report claimed that the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) had launched investigations into the alleged mishandling of customers’ funds. It is important to note that the investigations from both agencies predate the failed Binance deal.
Brace for contagion
Industry players are mentally preparing themselves for spillover effects from the FTX’s collapse. Galaxy Digital, Kucoin, Solana, Voyager, Tezos, and FTX Series C investors are some of the entities negatively affected by the implosion.
There are also reports that Kucoin has halted withdrawals following the collapse while miners and the broader NFT market bear the brunt. Currently, there is an $8 billion deficit in FTX’s balance sheets as the firm tries to remain afloat.
“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,” said Binance.