[Bitcoin Now] Exchange FTX Faces Liquidity Crisis, Drops 10%... Ethereum Down 15%

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Lee Jung-yoon] Binance, the world's largest cryptocurrency exchange, recently decided to acquire the troubled exchange FTX, but the prices of cryptocurrencies such as Bitcoin plunged. A large-scale withdrawal incident at FTX, which has been experiencing a liquidity crisis, dragged down coin prices.

According to the global cryptocurrency market tracking site CoinMarketCap, as of 10:01 a.m. on the 9th, the price of Bitcoin was recorded at $18,439 (approximately 25.36 million KRW), down 10.24% from the previous day. At the same time, Ethereum, the leading altcoin, fell 15.63% to $1,320 (about 1.82 million KRW), while Ripple and Dogecoin also plunged more than 13% and 20%, respectively.

Cryptocurrency prices traded on FTX fell even further. On the FTX spot exchange, Bitcoin dropped 10.76% to $18,308, and Ethereum fell 15.76% to $1,317.

The sharp decline in cryptocurrency prices was due to a bank run (a situation where customers withdraw coins all at once) triggered by concerns over FTX's liquidity crisis. Binance CEO Changpeng Zhao tweeted that he had signed a letter of intent (LOI) to acquire FTX and was conducting due diligence. He also mentioned that FTX had requested help. However, concerns that the acquisition might not be completed led to a bank run as users tried to withdraw funds from FTX. CEO Zhao stated, "The letter of intent is non-binding," adding, "We are assessing the situation in real-time in a very dynamic environment. Binance reserves the right to withdraw from the deal at any time." Additionally, worries increased as FTX halted investor fund withdrawals.

Binance and FTX had been in conflict, which was triggered when cryptocurrency media CoinDesk reported that Alameda Research, an affiliate of FTX, held a large amount of FTX's own token, FTT. It was reported that $3.66 billion of Alameda Research's total $14.6 billion in assets were in FTT. In response, CEO Zhao referenced the Terra-Luna incident and announced that he would sell his $2.1 billion worth of FTT as a risk management measure. The price of FTT plummeted 72.99% to $5.94 (about 8,158 KRW).

Bitcoin prices showed a rollercoaster pattern despite the resolution of the conflict between Binance and FTX. During the height of the conflict, prices dropped to the $19,300 range, but after CEO Zhao's tweet, they rose by more than $1,000 within about an hour to $20,500. However, with the emergence of bank run concerns, prices fell back to the $17,000 range.

The sharp decline in cryptocurrency prices also dampened investor sentiment. According to cryptocurrency data provider Alternative, the Fear & Greed Index, which measures investor sentiment, fell 2 points from the previous day to 29 points (fear) on the same day. This is the lowest level recorded this month. Alternative's Fear & Greed Index ranges from 0, indicating extreme fear and pessimism about investing, to 100, indicating optimism.