Binance Buying FTX? News Enough To Pull Crypto Back

Cryptocurrencies bounced back Tuesday morning in New York after a prolonged decline as traders adopted an immediately bullish stance to a sudden truce between the heads of exchanges Binance and FTX. 

Bitcoin and ether initially dipped on the day, posting losses of 6.3% and 8.9%, respectfully. The two largest digital assets then sharply rebounded and posted only 1.9% and 1.5% losses, respectively — after a Twitter thread from FTX’s Sam Bankman-Fried outlining a preliminary deal for Binance to acquire FTX outright. It appeared to mark an abrupt end to the recent  conflict from Binance CEO Changpeng “CZ” Zhao over FTX’s native token, FTT. 

Pending due diligence, the arrangement would not affect the US arms of either business. The move, initially, was attributed to mounting liquidity issues at the apparently cash-strapped FTX.

The plan is for Binance to strike a “non-binding” deal to acquire FTX, Zhao said on Twitter. 

“Our teams are working on clearing out the withdrawal backlog as is,” Bankman-Fried tweeted. “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.”

The whipsawing in price action comes as voters head to the polls in the US for midterm elections, which have led to volatility in token prices as investors speculate what could happen on a regulatory front. 

Crypto volatility spiked 14%. Coupled with ongoing fears of rising inflation and speculation about the Federal Reserve’s next move, it has become a textbook catalyst for price fluctuation, market participants told Blockworks.

“In this environment, people do not want to sell their assets, but they do so because they do not have a choice,” said Marcus Sotiriou, analyst at digital asset broker GlobalBlock. “We do not know if a recession will take place yet, or how severe it may be, but as rates stay higher for longer the odds increase. The positive side of this situation is that a decrease in spending results in inflation inflecting down, which is what is required for the Federal Reserve to ‘pivot’ and cut rates again.” 

Amid the turmoil in digital assets, equities were able to withstand election-fueled volatility midway through Tuesday’s trading session. The S&P 500 and Nasdaq Index both posted 0.8% gains at the open, as well. 

“Unlike previous years we do not see the election results as a material impact on stocks moving forward,” said Tom Essaye, founder of Sevens Report Research. “Because high inflation largely paralyzes major policy changes (politicians are afraid they’ll make something worse) and we don’t expect that to change materially unless there is a major surprise from the results tonight.”

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