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Samuel Bankman-Fried, also known as SBF, announced that he had "come to an agreement on a strategic transaction with Binance" for cryptocurrency trading platform FTX. The move comes as Binance CEO Changpen (CZ) Zhao tweeted that he had signed a non-binding letter of intent (LOI) to acquire FTX fully.
The two announcements by SBF and CZ took the crypto market by surprise. SBF was at pains to point out that FTX and Binance were two separate companies.
Things moved quickly over the last week. First, someone leaked part of Alameda Research's balance sheet. Sam Bankman Fried's crypto empire comes in two parts. Alameda Research is his trading company, while FTX is his exchange. The leaked balance sheet shows that it is full of FTX tokens. These tokens are issued to users and provide discounts on FTX's marketplace trading fees.
The leaked balance sheet caused Alameda CEO Caroline Ellison to immediately rebuff claims that the company was on the brink of insolvency. She tweeted that the leak did not show the full scope of the company's assets.
Reuters then announced that SBF had told FTX staff that the exchange had paused withdrawals. In the days leading up to SBF's announcement to staff, the exchange saw approximately $6 billion in net withdrawals. It soon became apparent that CZ had liquidated all of Binance's FTX tokens. He tweeted that the maneuver was not a move against his competitor, saying, "Regarding any speculation as to whether this is a move against a competitor, it is not. Our industry is in its nascency and every time a project publicly fails it hurts every user and every platform."
Samuel Bankman-Fried turned to Changpen Zhao for help in protecting its users, and CZ agreed, tweeting, "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 http://FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days."
He went on to say, "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. It may take a bit to settle etc. — we apologize for that… But the important thing is that customers are protected."
Predictable news of the proposed acquisition sent the markets into meltdown, with Bitcoin, Ethereum, Solana, and most other cryptocurrencies swinging wildly. As prices spiraled up and down, the markets saw huge sell-offs. Bitcoin, the largest of them all, was trading at $21,000 at one point but then dropped to under $18,000.
Ethereum saw an 11% drop over a 24-hour period and well below its crucial $1,500 mark. The news hit Solana even harder, losing almost 30% over 24 hours, finishing at just $23.87. This week Bitcoin and Ethereum have unusually not been following the US equities markets. The DOW was up 200 points on the day.
The longstanding Binance-FXT feud could have long-lasting consequences for all cryptocurrencies. As a result, many predict that the crypto winter traders are experiencing could last even longer. While at the same time, the specter of regulation may well have moved closer.
Related read: SBF Responds To Criticism About His Regulation Proposal
Matthew Feibach, a Blockworks research analyst, remains positive, stating, "People may lose confidence in [centralized exchanges], learn about self custody and operate on chain. An added bonus, it could help make ETH deflationary.”
Meanwhile, Peter Eberle, chief investment officer and president of Castle Funds, predicted a more prolonged crypto winter, "Uncertainty is bad for markets. 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!'"
The implications regarding regulation are uncertain, as are the effects that regulation might have. While many fear regulation, others see it as a catalyst that opens crypto to a broader audience. US regulators are certainly monitoring the situation regarding Binance and FXT. However, there have yet to be any responses from either the Securities and Exchange Commissioner or the U.S. Treasury Department.
Following the Biden administration's findings on digital asset regulation this fall, US regulators were already planning to double down on enforcement of any existing financial laws applying to cryptocurrencies. Most of Binance's and FXT's business operates outside the US. However, this acquisition will undoubtedly sharpen the minds of Washington policymakers.
Our rundown of crypto's most trending news stories.
Ethereum co-founder Vitalik Buterin releases an update on the network roadmap. Traders see the roadmap positively, resulting in bullish trading in ETH. In Buterin’s own words, the next development phase will see new features that will “ensure reliable and fair credibly neutral transactions inclusion.” These would effectively solve Ethereum’s Maximal (or Miner) Extractable Value (MEV) issues. In addition, this phase will see Ethereum becoming totally “SNARKed.” Snark stands for Succinct Non-Interactive Argument of Knowledge. It should see improved anonymity without any loss to transacting or traceability. (Read more)
US Attorney for the Southern District of New York stated that last November, authorities had seized 50,676 bitcoins linked to Silk Road, the darknet marketplace. The haul was valued at $3.36 billion when it was discovered but now has a value of $1.04 billion. Silk Road collapsed following the arrest and subsequent life sentence given to the site’s operator Ross Ulbright. (Read more)
OpenSea, the No 1 NFT marketplace, is releasing an “on-chain enforcement tool” that will enable artists to prevent the sale of their work on non-royalty sites. Royalties are a sore point for many in the NFT space. So this move will be welcomed by creators everywhere. However, the NFT community expresses concerns that artists will blacklist collections. (Read more)
Google Cloud has announced several collaborations with blockchain networks Ethereum and Solana recently. These announcements accelerated Google’s support of Web3. Ethereum became the first blockchain to gain Google’s support, and Solana will follow soon. At Solana’s weekend Breakpoint 2022 conference in Lisbon, Nalin Mittal for Google Web3 explained the broadening of investment that the company has put into Web3. (Read more)
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The much talked about Polygon MATIC cryptocurrency platform is directed and discussed to provide a thorough guide to this relatively new kid on the block
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