Bitcoin sinks to its lowest since 2020 as Binance’s FTX deal spooks investors

Bitcoin

Bitcoin fell to as low as $17,300.80 on Tuesday, the lowest level since November 2020 after reports of Binance Global’s takeover of the FTX exchange amid speculation of solvency problems at FTX.

Bitcoin - the benchmark cryptocurrency - climbed 6 percent initially following the announcement of the Binance takeover, but then dived in the red as FTX’s balance sheet and contagion worries gripped investors.

The cryptocurrency was trading over 7 percent lower at $18,224.47 around 11.55 am on Wednesday.

Shares in Crypto exchange Coinbase closed down 10.6 percent at around $50.92, according to Dow Jones Market data. MicroStrategy MSTR finished 21 percent lower at around $211.8.

Binance CEO Changpeng Zhao and FTX founder and CEO Sam Bankman-Fried announced the purchase overnight on Tuesday. After the announcement, the FTX Token (FTT), the native token of the FTX trading platform, plunged 76.4 percent in 24-hour trading.

The plunge was triggered after Bankman-Fried announced on Twitter that Binance will buy FTX’s non-US business for an undisclosed sum. Binance CEO Changpeng Zhao confirmed the news minutes later.

FTX’s debt accounts for 54 percent of its assets as of June 30. FTX was reportedly seeking financing of up to $6 billion to address the hole in its balance sheet, according to Semafor.

On Tuesday morning, FTX halted withdrawals from its platform, as investors attempted to pull their funds altogether.

On Sunday, Zhao tweeted that Binance would start liquidating its remaining FTT tokens, the native token of FTX, held on its books. According to a report by Bloomberg, Binance held about 23 million FTT tokens, worth over $500 million based on its current price.

Investors are spooked by the development as earlier this May the collapse of the Terra/Luna stablecoin project bankrupted a raft of crypto firms exposed to Terra.

“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,” Bankman-Fried said in a tweet on Wednesday. “It may take a bit to settle etc. — we apologise for that.”