How FTX Landed in a Liquidity Crunch and Why Binance is buying it?

Leading Cryptocurrencies Hit Daily Lows Amid FTX Crisis

In a recent tweet, Changpeng C.Z Zhao revealed that FTX 

Has requested Binance for help and Binance is willing to cover its losses ‘to protect the customers’.

 The reason cited behind the collapse is a severe liquidity crunch in FTX along with its sister company Alameda Research. 

This crisis has pushed some of the leading cryptocurrencies to hit their bottoms for the day. Solana, Bitcoin, Ethereum, Dogecoin, and other tokens are supposedly dumped into the market by FTX to cover their losses.

Why FTX Landed in a Liquidity Crunch?

Sam Bankman-Fried, founder of FTX and Alameda Research is known for being the crypto advocate at Capitol Hill. However, his lobbying efforts paired with a hefty donation of 50 million in midterm elections, have raised many eyebrows.

Things escalated quickly when Alameda Research's balance sheets were leaked and people claimed the insolvency of FTX. According to the balance sheets, FTX and Alameda Research hold $8 billion of FTT whereas the overall market capitalization of FTT was not more than $3 billion. This clearly indicated that FTX did not have the required liquidity for their customers in case of selling pressure.

The same happened when Binance decided to square off its FTT holding worth no less than $500 million. This incited a selling rally in FTX and forced FTX to dump Solana and other major holdings in the market to cover up their losses. This became the reason for the steep fall of Solana and other cryptocurrencies. 

Will Binance Buy a Sinking Ship?  

In one of the recent tweets of CZ, Binance has proposed to fully acquire FTX after the due diligence from their own end.

“This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire httpS://FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.”

Market scenarios have enabled Binance to entertain a better deal for FTX, however, the FTX community is skeptical about CZ’s proposal. In one of the posts on FTX’s official subreddit, users have claimed that the entire scenarios have been well orchestrated by CZ and the last-moment help is nothing but a buzz to liquidate the rest of Binance’s FTT holdings. 

This POV has the right reasoning in saying that Binance would happily let its competitor sink and consolidate its position in the market. However, the thing to contemplate is whether Binance is ready to cover over 5 billion thin-air FTT tokens.

Is Binance only willing to take a look into FTX books in the name of the proposed DD?

What according to lies ahead in the future for FTX exchange? Will Sam Bankman be able to recover FTT from this crisis?

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Also, Read This - FTX (FTT) Token Drops More Than 20% Due To FTX-Binance Dispute