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CNN Business
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It’s a jaw-dropping, curse-loud day at work in the crypto world, a turbulent and weird place even on the best of days.
Here is the transaction: Cryptos slumped all morning amid concerns about the solvency of FTX, the trading platform founded by Sam Bankman-Fried (aka SBF). He’s an entrepreneur whose name often appears next to descriptors like “prodigy,” “savior,” “white knight,” “digital Warren Buffett.” In short, he’s a crypto celebrity (and a 30-year-old billionaire).
SBF refuted rumors of FTX liquidity issues, even as its bigger rival Binance said it would liquidate its holdings of $580 billion in FTX internal tokens.
Then, in a real surprise, Binance said it had offered to buy FTX to solve its liquidity crisis.
“FTX turned to us for help this afternoon,” Binance CEO Zhao “CZ” Changpeng tweeted on Tuesday that “liquidity is severely constrained.”
Given the public spat and apparent feud between Bankman-Fried and Zhao, few saw the blockbuster coming.
“I was actually shocked by this,” an industry executive told me. “The FTX failure…a bit like Lehman’s activity in the space. But if they were rescued successfully, then that could block the pass.”
While the deal is still in flux, the partnership between FTX and Binance will mark two of the largest cryptocurrency exchanges by volume, and it will mark a structural shift in the industry’s power.
The news prompted a brief recovery in the digital asset, but not enough to calm anxious investors.
Bitcoin plunged more than 10% on Tuesday, hitting a 52-week low of around $17,600, according to CoinDesk data. FTX’s internal token, FTT, fell to $5.24, losing 75% of its value. Other digital assets and stocks tied to the industry, such as Coinbase, also fell.
SBF is one of the most influential figures in the crypto space. Over the summer, as digital assets plummeted in so-called ‘crypto winter’, Bankman-Fried Contribute about $1 billion to bail out businesses and shore up assets to prevent an entire industry from collapsing. He also became an unofficial ambassador, touting the promise of cryptocurrencies to the skeptical mainstream financial world.
On Tuesday, however, the Savior needed to be saved.
Concerns about FTX and Bankman-Fried’s trading firm, Alameda Research, began after a report last week by news site CoinDesk suggested that Alameda’s balance sheet is largely made up of FTT, a relatively illiquid token. .
The head of Binance, Zhao Wudi, sparked these concerns, saying that “due to recent revelations,” his company will sell all of its stake in FTT — about $580 million. His statement spooked investors and sent FTT plummeting.
Essentially, Bankman-Fried received a capital requirement of $580 million, but did not have enough liquidity to meet it.
What will happen now?
There is still a lot to figure out, but we can expect the digital asset to remain volatile until more details about the FTX-Binance transaction are made public. Some analysts say the cooperation could accelerate Washington’s push for cryptocurrency regulation.
Crypto may have just avoided its Lehman moment, but we’re in uncharted territory right now, and it’s unclear who’s willing to take on the next bailout if Binance is in trouble.
Alas, I’m not quitting my day job after all. The privilege belongs to a lucky lottery ticket holder in California who was the sole winner of the record $2.04 billion Powerball jackpot.
The state lottery tweeted that the ticket was sold at the Joe Service Center in California. A representative told CNN that the winner has yet to come forward, adding: “Someone was holding a very important piece of paper this morning.”
Rightly, most of the world is focused on the midterm elections. But Wall Street has already set its sights on Thursday, when the all-important consumer price index report will provide us with the latest data on inflation.
“Obviously, this midterm election — because democracy is on the ballot — is a big deal in the eyes of the people,” Peter Tuchman, a veteran floor trader at the New York Stock Exchange, told my colleague Matt Egan. “But how much of an impact it will have on the economy is a good question.”
In short, only a major turbulence will affect the market reaction at this time. Stocks have rallied in recent days, in part on investor bets that Republicans will take control of at least one chamber, splitting the government.
Split means deadlock.and Wall Street like deadlock.
In this case, the impasse would mean that Republicans cannot pass unfunded tax cuts, and Democrats cannot push unfunded spending plans — both of which would exacerbate a decades-long high inflation, and Raise interest rates, Matt explained.
“Less government, complete gridlock, could benefit the stock market,” Tuchman said.
Several traders told Matt that the midterm elections could easily be overshadowed by Thursday’s CPI, arguably the most important economic indicator this month.
“The market can adapt to almost anything but the unknown,” Tuchman said. “The biggest long-term unknown in the market is the inflation story.”