Did Binance just do what we think it did? The world’s biggest cryptocurrency exchange by trading volume will likely buy one of its biggest competitors. The market was in turmoil, the players were in panic mode, but this news calmed the waters in a big way. What’s next, though? Will Binance actually go through with the buyout? Is the deal final? And what does this story says about FTX’s business model? Were they fractional-reserving their way to success?
Let that sink in… pic.twitter.com/Whj50bR2Ey
— wolf (@ImNotTheWolf) November 8, 2022
Let’s analyze the official but not abundant information out there and try to reach our own conclusions.
Sam Bankman-Fried Bends The Knee
After a whole morning of radio silence, the mind behind FTX and Alameda Research finally spoke. In a Twitter thread that will live for the ages, Sam Bankman-Fried was as vague as one can be. “We have come to an agreement on a strategic transaction with Binance for FTX.com,” he tweeted. Then, he announced that “our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1.”
Wasn’t that supposed to be the case from the beginning, though?
2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that.
— SBF (@SBF_FTX) November 8, 2022
Then, Bankman-Fried proceeded to effectively declare a winner. “A *huge* thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry,” he tweeted about his new boss. “Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands.”
5) I know that there have been rumors in media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands.
— SBF (@SBF_FTX) November 8, 2022
Is the deal set in stone, though? According to River’s CEO Alexander Leishman, “The DD on this deal is going to take forever. Bankruptcy still on the table if Binance decides they don’t want to touch it after digging deeper.”
BNB price chart on FTX | Source: BNB/USD on TradingView.com
The Binance CEO Announces The Win
Allegedly, CZ knew what he was doing the whole time. After distancing himself from the concept of war and saying Binance was focused on building, today CZ really showed his true colors. “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 FTX.com and help cover the liquidity crunch,” he humbly tweeted.
There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop.
— CZ Binance (@cz_binance) November 8, 2022
However, CZ is admitting to a liquidity crunch that shouldn’t be there. And then, he clarifies that the deal isn’t done yet. “There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time.”
Analyzing the little data we have, DeFinace Capital’s Arthur Ox tweeted, “Given how little time it took to close this deal. It’s likely Binance acquire FTX for nominal/negligible amount and assume all the liabilities of FTX.” And then, he gave advice, “if I am previous round investor of FTX, I will probably start engaging litigation lawyer now.”
The Future For Binance And FTX
The analysts are having a field day with this story. Dylan LeClair, who’s been covering the ins and outs from day one, recently tweeted that the resolution “confirms that FTX is insolvent without a bailout from Binance” and that “Alameda was speculating with user funds.” Those are severe accusations, but he’s got some data to back them up.
I thought your deposits were backed 1:1??
Or was your “proprietary trading desk” directionally trading using user funds. We could all see the movements flooding back from Alameda wallets on-chain yesterday as reserves got depleted. pic.twitter.com/f7Y3LsYsqq
— Dylan LeClair (@DylanLeClair_) November 8, 2022
Questioning the liquidity crunch, LeClair asks, “was your “proprietary trading desk” directionally trading using user funds. We could all see the movements flooding back from Alameda wallets on-chain yesterday as reserves got depleted.” Taking it to the next level, economist Tuur Demeester is concerned with the implications, “If Binance buys FTX and hence takes over the claims of its depositors, it seems likely that Binance then would also become (or remain) a fractional reserve operation.”
What a time to be alive.
Bitcoin At $1,000: Looking Back At Nine Years Of Bull Run
If the first part of the above headline about Bitcoin price had your heart pumping, it might be time to reduce the amount of leverage you are using.
No, we aren’t calling for BTC to reach a target of $1,000 – we are instead looking back and celebrating the nine-year anniversary of the first time Bitcoin breached above $1,000.
Nine Years Ago: BTC Breaks Above $1,000
Bitcoin is now in the midst of its fourth ever bear market and currently trading at a price of around $16,000 per coin. After the dramatic fall from $69,000 in late 2021 to current levels, sentiment has taken a beating. It isn’t unusual to see targets on crypto Twitter for $1,000 BTC in the days ahead.
Today, however, we aren’t as focused on future targets for the top cryptocurrency, but the long journey Bitcoin has had from when it first passed $1,000.
Nine years ago from yesterday, on November 27, 2013, BTC breached above $1,000. The level proved to be significant at the time, with BTCUSD trading above $1,000 for less than ten days before the 2014-2015 bear market started.
From that point on, it was more than 1000 days before Bitcoin passed $1,000 again. But when it passed it again, Bitcoin became a household name.
Bitcoin breached $1,000 exactly nine years ago yesterday | Source: BTCUSD on TradingView.com
Where To Next: $1K or $1M Per Bitcoin?
$1,000 per BTC was significant for several reasons. It was a large, rounded number in US dollars, but 1 BTC was almost exactly the same price of an ounce of gold at the time.
After breaching above $1,000 a second time, Bitcoin went on to climb just under 2,000% to nearly $20,000 per coin. Today, five years later, BTC is below the 2017 bull market peak.
From the $1,000 milestone to current prices at around $16,000 per BTC, the top cryptocurrency still has more than 16,000% ROI its held onto. From its inception, it has gained more than 150,000,000% cumulatively.
Despite this, there are equal calls for a revisit to the $1,000 level as there are for Bitcoin reaching $1 million per coin, making BTC the most interesting speculative asset of all-time.
Follow @TonySpilotroBTC on Twitter or join the TonyTradesBTC Telegram for exclusive daily market insights and technical analysis education. Please note: Content is educational and should not be considered investment advice.
Featured image from iStockPhoto, Charts from TradingView.com
Crypto Fraud in UK Claims 32% to £226M amid Recession
Many UK residents are currently struggling to survive in the wake of a recession that is taking a toll on all and sundry, leading to a rise in crypto fraud. In hard times like this, criminals seek to exploit people and reap their funds. Reports have shown that crypto fraud in the UK grew 32% over the past year. According to data from the UK police unit Action Fraud, about £226 million ($273 million) was lost in crypto fraud over the past year.
UK Crypto Fraud Increases amid Recession
The recession in the UK is getting worse by the day, with readings suggesting that the economy is shrinking at a 0.4% quarterly rate. A major survey also added that the economic downturn could linger into the coming year. While S&P Global’s poll places the economic fall at a 0.4% quarterly rate, Gloom said it was widespread. There are also expectations that new businesses may stumble to the point of no recovery.
The cost of living has increased amid the recession, and many are now vulnerable to fraudsters. A forensic accountant at Pinsent Masons, Hinesh Shah, told Financial Times on Monday:
“Whenever times are tough, fraudsters always seek to prey on less experienced investors by promising huge returns.”
There have been major discussions on crypto in the UK and the presence of crypto firms in the country. The UK Financial Conduct Authority (FCA) said in a report that crypto fraud is tied to increased cyber crimes. The agency noted 5,568 suspected crypto scams between the 1st of April 2021 and the 31st of March this year. The reports increased 36% YoY, and the UK financial watchdog intensified its commitment to warning consumers of the risks of crypto investments. There are currently 39 crypto-asset firms legally operating in the US, with 246 running without undergoing necessary procedures. The FCA’s executive director of markets, Sarah Pritchard, stated:
“Setting high standards and acting quickly to crack down on problem firms will help ensure market and consumer confidence, supporting the integrity and growth of UK financial services.”
With the recent happenings in the UK, crypto fraud is almost inevitable not to record crypto fraud cases. Illicit activities involving cryptocurrencies make major news headlines, and law enforcement has seized crypto assets worth millions due to criminal acts.
About a month ago, UK lawmakers agreed to legally see crypto as a regulated financial instrument. Parliamentarian Andrew Griffit proposed that crypto should be regulated in the country. He added that this would not mean that it would have preferential treatment. Instead, it would help the UK’s regulatory framework for financial assets.
Genesis Bankruptcy by EOY Now At 59% – Sentiment Of Bitcoin Investors Pivots
A possible Chapter 11 bankruptcy of Genesis Trading and parent company DCG is still depressing the sentiment on the Bitcoin market. Genesis last commented on Twitter on November 16. Parent company DCG last spoke out on November 18 via the social media platform.
Investors, however, seem to take a rather positive view of the silence. As recent data from the world’s largest decentralized prediction market Polymarket shows market participants now estimate the probability of a Genesis insolvency at only 59% by the end of year (EOY).
The peak value was 81%. Thus, the narrative appears to have pivoted to the extent that the problem is fixable for Genesis and DCG. Expert opinions currently suggest that it is more of a liquidity shortage than a solvency problem for DCG.
Bitcoin Experts Warn Against False Panic
Bitcoin OG Samson Mow explained that the DCG group has real assets and income-generating businesses, and the problem is primarily a liquidity shortage.
According to Mow, Genesis and DCG have enough assets to pay debts, they’re just not available in cash. The worst-case scenario, a bankruptcy of Genesis and DCG “seems unlikely” for him.
Since DCG has high revenues and assets, insolvency of Genesis would not be the end of the parent company. To that extent, Mow considers the theory that Grayscale could be liquidated and the 634,000 BTC could hit the open market also “an unlikely outcome.”
DCG still has a number of good assets, including Grayscale, which generates around $500 to $800 million a year in management fees. According to Mow, the likely outcome is a restructuring or an outright buyout by a bigger player.
Ryan Selkis, founder of Messari, currently strikes a similar tone. He also warns against scaremongering that DCG can simply “dump” its GBTC shares. “That’s part of their liquidity crisis, but also net good news for GBTC shareholders and FUD fighting,” Selkis said.
The reason is that Grayscale has to follow strict rules. Thus, DCG cannot simply sell its nearly $800 million worth of GBTC shares because it is not an ETF as desired but a listed vehicle that falls under Rule 144.
Because of this, there are two important restrictions. DCG must make public a notice of proposed sales. Furthermore, there are caps on sales of 1% of outstanding shares or weekly trading volume.
Given GBTC has a daily volume of ~4.5mm shares that works out to quarterly cap on sales of 2.5mm shares ($23mm / quarter) under the trading test and 6.9mm shares ($62mm / quarter) under the asset test.
If Grayscale were to start forced sales, it would send the price of GBTC further down, and the discount would continue to grow. According to Selkis, this liquidity problem makes it much more likely that DCG-Genesis will refinance using GBTC as collateral.
At press time, Bitcoin was trading at $16,157. Thus, the next important resistance is currently at $16,310, while the support at $16,050 is of major concern.
Bitcoin price, 1-hour chart. Source: TradingView
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