The crypto market has sustained a massive blow after Changpeng Zhao tweeted over the weekend that Binance would sell its holdings of FTT. Sam Bankman-Fried’s FTX halted withdrawals from its platform on Tuesday morning after investors tried to withdraw their funds.
Zhao had tweeted that Binance has around $2.1 billion combined in FTT and BUSD. The crypto exchange will be liquidating any remaining FTT on its books. This got rumor mills rumbling that FTX may be headed for solvency. Moreover, a recent report shed light on the state of Alameda’s finances with a large portion of its balance sheet concentrated in FTT, and some activities are leveraged with FTT as collateral. But Alameda denied the claim saying that FTT represents only part of its total balance sheet.
Jeff Dorman, chief investment officer at Arca, said the Alameda hedge fund is tied to FTX through a ton of FTT tokens. He believes if the price of FTT goes way down, then Alameda could face margin calls and all kinds of pressure, and if FTX is the lender to Alameda, then everyone’s going to be in trouble. Dorman said this could have been an isolated issue at Alameda, but became a bank run. Panicked investors started to pull their assets out of FTX, and the fear that FTX would be insolvent is gaining traction.
Conor Ryder, a research analyst at Kaiko, said there was confidence that FTX and its customers would be fine. He believes the panic is understandable. Ryder explained that the problem is the opaque nature and the lack of transparency about FTX reserves, and Alameda’s reserves but no one really knows how much the two are intertwined. The expert highlighted that FTX’s dilemma mirrors Celsius’s issues about the transparency of funds. Ryder said, all in all, Sam Bankman-Fried’s FTX hasn’t reassured investors either.