The largest cryptocurrency exchange Binance has agreed to a strategic transaction to fully acquire Sam Bankman-Fried’s FTX, in light of the liquidity crisis befalling the exchange and its sister company, Alameda Research. Binance CEO, Changpeng Zhao, revealed this unexpected development late Tuesday, admittedly proving that FTX was headed for insolvency, as reports had claimed.
What could happen to FTX Token (FTT)?
FTX Token (FTX) was at the centre of the FTX-Alameda drama that played out in the cryptocurrency space this week. It all started from a scoop published last week by Coindesk, which unveiled that Alameda Research’s balance sheet was significantly dominated by FTT. The problem, however, is that Alameda’s holdings (about $8 billion then) were illiquid when compared to FTT’s real market capitalization of $3 billion.
The disclosure alone stirred full-force speculations that Alameda holds a significant volume of FTT backed by nothing. In light of this revelation, Binance CEO announced his company would be dumping their remaining FTT holdings (about $500 million) obtained via early equity investment in FTX. Together with the panic already seen amongst FTT holders, CZ’s announcement drove the FTT price down.
Also, many scared users scrambled to withdraw their funds from FTX, consequently commencing what appears to be a bank run for the 3rd-largest cryptocurrency exchange. Amidst the withdrawal pressures, FTX encountered a liquidity crunch, which necessitated a plea for a bailout by its rival, Binance.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire and help cover the liquidity crunch. We will be conducting a full DD in the coming days.Binance CEO, CZ.
Will FTT token still exist?
It’s uncertain what direction or measure will be adopted for the FTT token, should Binance proceed to takeover FTX. However, a more likely scenario to happen is Binance discontinuing its initial plan to liquidate all FTT tokens in its book. This entails that the FTT token could see a relief pump or fewer downward price actions, as sell-side pressure might decrease.
Moreso, Binance might extend the FTT token to BNB Chain, which could unlock more DeFi opportunities for the token. Yet, the chances that FTT might collapse are still not negated. Compared to Binance Coin (BNB), which is the transactional currency for the Binance ecosystem, FTT trades mostly on speculations, and there is arguably no inherent utility driving demand for the token, except on FTX. In absence of demand and utility, FTT might fail to exist in the future.
Meanwhile, in the near future, CZ stated that FTT would be highly volatile.
FTT crashes 87% in a day
Moments after Binance bailout disclosure, FTT tanked by more than 87% to sub $3, after seeing a small pump to the $21 price level. At press time, FTT has slightly reclaimed $4.18, which has a market capitalization of $550 million, down from over $3 billion a day ago.