Who would have thought that the implosion of Terra, the collapse of Three Arrows Capital, and the bankruptcies of Celsius and Voyager would not be the most dire stories of 2022 in the crypto space? In hindsight, the day of reckoning for cryptocurrencies—and the new low of the cycle—had not arrived even after all these tumultuous events.
The industry’s cyclical run came this week when fears were raised that FTX — the world’s second-largest cryptocurrency exchange — was insolvent and on the verge of collapse. Those fears stemmed from FTX’s incestuous relationship with Alameda Research, a trading firm founded by FTX CEO Sam Bankman-Fried—it turns out that FTX was trading Alameda’s income to prop up its business, offering its illiquid and useless FTX (FTT) token for Alameda Tether—. Amid reports that the native FTX token comprised roughly 40% of Alameda’s assets, Binance CEO Changpeng Zhao announced that his exchange would liquidate its entire FTT stash. It was Zhao himself, also known as CZ, who he offered to buy FTX a few days later to save it from impending collapse. Although Bankman-Fried agreed to the deal, credible rumors suggest that CZ is backing out due to the gaping hole in FTX’s finances. (Those rumors have since been confirmed to be true.)
Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs. Onwards.
— CZ Binance (@cz_binance) November 6, 2022
Liquidating our FTT is just post-exit risk management, learning from LUNA. We gave support before, but we will not pretend to make love after the divorce. We are not against anyone. But we will not support people who lobby other industry players behind their backs. Ahead.
This week’s Crypto Biz newsletter is not for the faint of heart.
Binance CEO Announces Intent to Acquire FTX to “Help Hed Liquidity Crunch”
After trying to quell rumors about FTX’s liquidity problems, Bankman-Fried announced on Nov. 8 that his firm had agreed to an acquisition of Binance, a move meant to ensure that all existing users recover. “I know there have been rumors in the media about the conflict between our two exchanges, however Binance has shown time and time again that they are committed to a more decentralized global economy while working to improve the industry’s relationships with regulators.” Bankman-Fried tweeted.. (It was later reported that CZ and Binance looked under the hood of FTX and didn’t like what they saw, so they are pulling out of the deal.)
Whether he likes to admit it or not, CZ played a major role in the collapse of FTX this week when he tweeted his intention to liquidate Binance’s holdings in FTT. As the whole ordeal unfolded, CZ plumbed “two big lessons” he learned from the FTX saga: “Never use a token that you have created as collateral” and “Do not borrow if you run a cryptocurrency business.” He also confirmed that “Binance has never used BNB (BNB) as collateral, and we have never gone into debt.” Massive debt, poor asset management, and highly risky trading practices have been common themes in this year’s cryptocurrency market chaos.
Two big lessons:
1: Never use a token you created as collateral.
2: Don’t borrow if you run a crypto business. Don’t use capital “efficiently”. Have a large reserve.
Binance has never used BNB for collateral, and we have never taken on debt.
Stay #SAFU.
— CZ Binance (@cz_binance) November 8, 2022
Galaxy Digital Reveals $77M Worth of FTX Exposure, $48M Likely Locked in Withdrawals
As FTX began to unravel, it didn’t take long for companies to step up and acknowledge their exposure to the sinking crypto derivatives exchange. On the 9th of november, Blockchain financial services firm Galaxy Digital revealed that its FTX exposure was worth nearly $77 million consisting of cash and digital assets. The company also acknowledged that $48 million of that total was likely locked in withdrawals. Like many other collapsing exchanges and lenders, FTX announced that it was halting withdrawals to prevent a bank run while its FTT token was in free fall.
Meta joins big tech layoffs, letting go of 11,000 employees
As if the cryptocurrency news wasn’t bad enough, Facebook operator Meta announced this week that it will lay off roughly 13% of its staff, which equates to 11,000 people. Like other big tech companies, Meta is hemorrhaging money due to rising costs and a declining economy.. Meta’s metaverse division, dubbed Reality Labs, lost $3.672 million in the third quarter, raising serious questions about its metaverse ambitions. Some Meta shareholders are increasingly concerned that Mark Zuckerberg’s metaverse experiment will bear no fruit. Zuck could spend up to $100 billion on his metaverse business over the next ten years. Is that a bet you’d make?
BREAKING: Meta CEO Mark Zuckerberg says the company will cut 13% of jobs affecting more than 11,000 employees, the first major round of layoffs in the social media giant’s history https://t.co/heUXkZEQPL pic.twitter.com/yFg8tZbI0i
—Bloomberg (@business) November 9, 2022
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