Binance and FTX Conflict Could Spill Over Into Crypto Market Pullback

The crypto market had only just begun to experience a revival, when a series of tweets exchanged between Binance and the FTX exchange whipped up a flurry of emotions, resulting in a bank run and the crash of Bitcoin (BTC) well below its precarious $20,000 mark. At the time of writing, the top cryptocurrency was trading at $18,394.60.

Reasons and Backlash

Such a strong negative correction for Bitcoin was the result of Binance’s move to cancel its exposure to the FTX exchange’s native FXT token for $580 million. Binance CEO Changpeng Zhao remained adamant in his decision, reiterating it in his tweets, which clashed with statements made by FTX CEO Sam Bankman-Fried, who desperately tweeted about his platform’s solvency.

The appeals made by FTX’s CEO did little to stop the bank run as exchange users scrambled to withdraw their assets after heeding the clear signal sent by Binance – the undisputed opinion leader on the market. Over 20,000 BTC had been withdrawn from the exchange since the beginning of the tweet clash, dwindling to just over 7 at the time of writing.

FTX has since bled over $1 billion in withdrawals, all resulting from a severe debt crisis, which was further exacerbated by the downward pressure exerted by Binance – its main competitor. Needless to say, Binance was in favor of pushing the number two exchange on the market off the radar and squeezing its wallets. Analysts and experts, however, are certain that FTX is not as insolvable as it might seem, and there is no reason to draw clear parallels with the cases of such crypto disasters as LUNA and Celsius.

Other Reasons

Bitcoin is reeling from the turbulence in the crypto market, swept up by the steaming conflict between rival exchanges and fueled by contradictory tweets that are tossing coal into investors’ FUD sentiments. However, there are other factors involved as well.

The volatility in cryptocurrency markets was expected in light of the ongoing midterm elections in the United States – one of the most highly anticipated and seemingly fateful events in geopolitics this year. The outcome is not as important to investors as the process itself, as cryptocurrency users are scrambling to secure their savings and assets for fear of violent clashes in the United States between opposing party supporters. The announcements made by Donald Trump regarding his enigmatic statement to be made on November 15 and the slew of vote-rigging reports coming in from various states, are driving hostility among voters, exerting additional pressure on Bitcoin’s price.

The Consumer Price Index report to be released on November 10 is another major factor to consider, as analysts are dreary about the figures it will contain. The general weakness of stock and commodities markets overall is not in favor of cryptocurrency prices, protracting the longest crypto winter in recorded history.

Damage Control

In light of FTX’s modest price gains following the bank run, FTX CEO Bankman-Fried released a reassuring tweet, stating that he managed to come to an agreement with Binance. The move was an attempt at burying the hatchet for a while to allow the backlog of transactions on FTX to dissipate and cover liquidity crunches with asset coverage at a 1-to-1 ratio.

What seemed like a community-centered move, rather than a confirmation of defeat, was released ensuing the announcement as Bankman-Fried tweeted that FTX and Binance are in no conflict, but are actually working together to improve the overall decentralized economy and industry regulation.

Binance CEO Zhao replied almost instantly to the announcement with a clarification that FTX had contacted Binance with a proposal to sign a non-binding letter of intent on the acquisition of FTX. The move was a clear signal for a liquidity rescue and a means of quelling crypto community panic to stem withdrawals.

Such an announcement on the part of FTX is in clear violation of its previous statements, which repeatedly highlighted its solvency. The hint at preserving liquidity and the exchange as an entity through the acquisition by Binance is clear, however, as are Binance CEO Zhao’s concerns. His tweets ensuing the proposed acquisition of FTX suggest he is not supportive of the deal, deflecting to a free crypto market motif.

The Impact

Naturally, if Binance acquires FTX, it will be a truly landmark event for the market, making Binance the undisputed leader, one unattainable by even its closest rivals. A major point of note in terms of scaling if this happens is that FTX has been acquiring crypto businesses for quite some time, with the latest intention being the purchase of Bitvo as a potential launchpad for Canadian market expansion.

Certainly, Binance can withdraw from the deal at any time, but few doubt its ambition to become the undisputed and dominant player in the market. If the acquisition does go through, it could lead to even further centralization of the so-called decentralized market. Not to say that such a development would be a bad thing, as it would mean the influx of a greater amount of crypto assets under the wing of the heavily-regulated Binance legal entity.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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