Bumpy Road for Coinbase, Microstrategy and Bitcoin
The days and weeks ahead are going to be long, very long, for cryptocurrencies and their related businesses.
The industry is once again going through a crisis of confidence provoked by the surprise announcement on November 8 that the young billionaire Sam Bankman-Fried, who emerged as the savior of troubled companies last summer, would quickly sell his empire to his big rival, Changpeng Zhao, to avoid an unprecedented liquidity crisis.
This empire consists of the cryptocurrency exchange FTX.com, whose ambassadors are sports stars Stephen Curry and Tom Brady. There is also the high-frequency trading platform Alameda Research.
Financial details of the transaction were not disclosed.
But this deal is more of a bailout, as Zhao indicated that FTX and Alameda were on the brink of insolvency.
“This afternoon, FTX asked for our help,” Zhao, co-founder and CEO of Binance, wrote on November 8. “There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, with the intention of buying in full. and helping cover the liquidity crunch. We will conduct a full DD in the coming days,” he added.
DD refers to Due Diligence.
Fear of infection
The announcement caused a drop in the prices of cryptocurrencies and shares of companies in the sector. Bitcoin (BTC) is down 9.2% to $17,714.53 in the past 24 hours, while Ether (ETH), the second-largest digital currency by market capitalization, fell 15% to $1,235.93, according to data provided by CoinGecko.
In the stock market, there is also a debacle for crypto companies. Coin base (COIN) – Get a free reportthe only publicly traded crypto exchange, lost 5% on November 9, after already falling 13% the day of the announcement.
Micro strategy (MSTR) – Get a free report, the software company of billionaire and crypto evangelist Michael Saylor, fell 5%, following a 24% collapse the previous day. The firm is the public company with the most bitcoins on its balance sheet, as a result of a large stake in digital assets.
Digital Marathon (MARA) – Get a free reporta crypto mining company, was down 3%, after losing 10% the previous day.
“There is sufficient reason to believe that the risk of further contagion remains due to loan defaults to Alameda,” said Sean Farrell, head of Digital Asset Strategy at FS Insight.
He added: “Given the current unknowns, it may be prudent to raise funds in the event of further withdrawals across other major cryptoassets.”
Coinbase distanced itself and tried to reassure investors by explaining that the financial situation was solid.
“Today, Coinbase and our customers are not in any immediate danger of liquidity or credit risk,” CFO Alesia Haas said in a blog post. “Regardless of whether the Binance/FTX transaction is completed, we have very little exposure to FTX and we have no exposure to the token, FTT. We currently have $15 million in deposits on FTX to facilitate business operations and customer trades. We have no exposure to Alameda Research, and we have no loans for FTX.”
Investors are convinced that many crypto firms have exposure to Alameda, which provided funding to many companies when sister digital currencies Luna and UST, or TerraUSD, collapsed last May.
This debacle led to the bankruptcy of hedge fund Three Arrows Capital, crypto lenders Voyager Digital and Celsius Network.
Investors lost at least $55 billion in the collapse of Luna and UST.
Voyager and Celsius customers are still trying to get their money back.
