Happy Hump Day everyone,
The crypto world is on fire right now, Bitcoin fell to <$16k, Dow tanked 600 points today, and Binance walked away from the FTX deal. This edition of Hump Days is HOT.
Enjoy this week’s Hump Days!
- Humphrey, Rickie & Tim
Featured Story
Disclaimer: This story is continuing to develop as I’m writing it so if you’re reading this late, please take that into account. This is what’s happened so far.
Binance, the world’s largest crypto exchange, signed a non-binding letter of intent to acquire the second-largest crypto exchange in FTX, following a days-long Twitter feud that escalated earlier this week and resulted in several digital tokens crashing 10%-20%.
Earlier this week, rumors came out concerning Alameda Research’s (FTX’s hedge fund) financial health. Essentially, investors were concerned that FTX was insolvent and Alameda was used as part of a flywheel scheme where FTX printed FT Token (FTT) out of thin air and subsequently lent the FTT to Alameda who borrowed USD stables against the FTT and sent the USD stables back to FTX. Infinite money glitch.
Binance, who holds roughly $2.1B of BUSD/FTT after their exit from FTX last year, announced they would be dumping their position in FTT following concerns over FTX’s liquidity. Within 72 hours of this happening, FTX saw almost $6B of net withdrawals and the crash of FTT from $26 down to $4. To meet the liquidity crunch, Sam Bankman-Fried (FTX founder) asked Changpeng Zhao (Binance founder) for help and Binance signed a non-binding letter of intent to fully acquire FTX and cover the liquidity crunch. Bankman-Fried said that FTX was working on clearing the existing withdrawal backlog and that all assets would be covered 1:1 with the help of Binance.
Binance was the first investor that backed FTX before their long list of investors were on board including Sequoia, BlackRock, Tiger Globa, and SoftBank. The relationship between the two exchanges soured which preceded Binance’s exit from FTX last year, and ultimately, the news of the major acquisition. The financial terms of the deal have yet to be disclosed but it is likely pennies of the dollar for investors of FTX, which was valued at $32B earlier this year.
The latest update from these two (as of Nov. 9, 5 PM EST) is that Binance has said it would walk away from its initial offer to acquire FTX after a review of the company’s structure and books.
"Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” - Binance
The crypto market is still reeling from the sell-off from the past few days and the news of FTX not being able to meet its liquidity demand paired with the recent crash of Luna, for example, is not a good look for the crypto community as a whole. With all the negative press surrounding crypto lately, going concern is definitely a risk across the board. It’s going to be a bumpy ride for the foreseeable future.
Weekly News Roundup
Crypto Giant Binance to Acquire Rival FTX Following “Liquidity Crunch” (Tech Crunch)
Binance signed a letter of intent to acquire its most formidable rival FTX following a days-long public spat between the world’s two largest crypto exchanges that contributed to several digital tokens taking a tumble. FTX was overrun with withdrawal requests and could not meet the demand for liquidity. The financial terms of the non-binding deal are unknown but it is likely pennies on the dollar which is a huge hit on investors of FTX, which was valued at $32B in a financing round earlier this year.
HY: Very bearish for crypto in general. Having a stalwart fall/get acquired/bailed out is similar to having a large financial institution collapsing. You can see this reflected in the prices of crypto today.
Republicans Favored to Win House Majority, but by a Smaller Margin Than the Party Had Hoped (WSJ)
Several key races are still to be decided, but Republicans remain narrowly favored to take control of the U.S. House. The latest results fell short of the sweeping gains that some in the GOP anticipated. Control of the Senate is still up for grabs with the Democrats picking up a key seat in Pennsylvania. Democrats also flipped governorships in Maryland and Massachusetts, while two of the nation’s most prominent Republican governors: Florida’s Ron Desantis and Texas’ Greg Abbott, cruised to re-election
U.S. Climate Envoy John Kerry Rekindles Contact with China at COP27 (WSJ)
John Kerry, U.S. Climate Envoy said he spoke with his Chinese counterpart during the COP27 UN Climate Conference in Egypt, rekindling contact between countries whose efforts are pivotal in the global fight to limit greenhouse gas emissions. China’s climate envoy Xie Zhenhua said that China would continue to participate in global climate governance. This comes after years of climate talks between China and the U.S. broke down after House Speaker Nancy Pelosi visited Taiwan.
Chart of the Week
The fallout of the Binance-FTX deal could open Pandora’s box as everyone is looking at who is next to get liquidated.
They're falling one after another. How many exchanges do we have left?