The Long-term Impact of the Binance FTX Feud
The inter-exchange spat could elongate crypto winter, but it may also speed up regulation, some say
Blockworks exclusive art by axel rangel
The psychological tango between the heads of Binance and FTX could have a longer-term impact beyond the price drop of the latter exchange’s native token. Industry participants chimed in before news came out about the companies’ potential merge.
Binance founder Changpeng Zhao tweeted Tuesday morning that the exchange had signed a non-binding letter of intent to fully acquire FTX.com.
The news comes after Alameda Research’s balance sheet, reported by CoinDesk last Wednesday, showed about 40% of the firm’s $14.6 billion of assets were attributed to FTT, the token that powers trades on FTX.
Alameda Research was founded by FTX CEO Sam Bankman-Fried.
Solana (SOL), the cryptocurrency behind the blockchain backed by Bankman-Fried, accounted for about 8% of Alameda’s assets.
Alameda CEO Caroline Ellison rebuffed claims on Sunday that the firm is on the verge of insolvency, tweeting that the leaked balance sheet didn’t provide the full scope of Alameda’s assets.
Zhao later tweeted he would liquidate his firm’s substantial FTT holdings.
FTT was trading at $14.65 at 11:00 am ET, down about 36% in the last 24 hours. FTT soared after the disclosure of the alleged impending Binance buyout, reaching $18.55 by 11:30 a.m. ET.
SOL, which was at $27.60 at 11:00 am ET — down roughly 15% from a day ago — went up to $30.36 a half hour later.
Ryan Shea, a crypto economist at finance broker Trakx, said the weekend situation between Binance and FTX came at an unfortunate time for the broader crypto market.
Bitcoin is down about 72% from its all-time high reached last November. It had rebounded last week, rising above $21,000, but bitcoin’s price was down 5.5% in the last seven days, as of 11:00 am ET. Bitcoin too rebounded following Binance’s stated intent to buy FTX.
“The nascent recovery in crypto prices is being jeopardized by negative sentiment,” Shea said in an email.
“And after the torrid summer we experienced — not to mention the still troubling macro backdrop — the last thing the sector needs is more rumors of potentially dubious or nefarious behavior,” he said.
Marius Ciubotariu, a core contributor to Solana-based Hubble Protocol and Kamino Finance, said before the acquisition news that Binance perhaps saw an opportunity to get the edge on a competitor more favored by US regulators.
“Unfortunately, it may never be possible to tell who is in the right because, simply by taking this action, Binance has an enormous influence on the outcome for FTX,” he added.
What’s the longer-term impact?
Blockworks Research Analyst Matthew Feibach also noted before Zhao’s tweet Tuesday morning that the so-called feud between Binance and FTX could benefit the space in the medium term.
“People may lose confidence in [centralized exchanges], learn about self custody and operate on chain,” he said. “An added bonus, it could help make ETH deflationary.”
Other industry watchers had said the situation between Binance and FTX could elongate crypto winter.
“Uncertainty is bad for markets,” said Peter Eberle, chief investment officer and president of Castle Funds. “This is one more example why people should keep their crypto on their wallets. Only use exchanges — DeFi or traditional — for trading, and then keep your tokens [and] coins on a hardware wallet off of exchanges. ‘Not your keys, not your coins!’”
Mark Fidelman, founder of SmartBlocks, said he believed Zhao’s swipe at FTX could lengthen the industry downturn, but perhaps only slightly. But prior to the pending acquisition news, he said he expected the leaders of Binance and FTX to make amends.
Shea said the timeline for crypto regulation could be impacted as well. Some said the Biden administration’s crypto framework, unveiled in September, was lacking in details, as the president called for yet more research on a potential digital dollar.
“If the latest episode serves to speed up crypto regulation, then it could be just the catalyst that brings crypto to a wider audience, and this is a good thing,” Shea said.
Get the news in your inbox. Explore Blockworks newsletters:
- The Breakdown: Decoding crypto and the markets. Daily.
- 0xResearch: Alpha in your inbox. Think like an analyst.
- Empire: Crypto news and analysis to start your day.
- Forward Guidance: The intersection of crypto, macro and policy.
- The Drop: Apps, games, memes and more.
- Lightspeed: All things Solana.
- Supply Shock: Bitcoin, bitcoin, bitcoin.
