Reported by Zhao Yi, Hu Jinhua, a reporter from China Times (www.chinatimes
Reported by Zhao Yi, Hu Jinhua, a reporter from China Times (www.chinatimes. net. cn) in Shanghai
The impact of the FTX crash is still ongoing. On November 10th, data showed that Bitcoin fell below the $16000 mark, reaching a low of around $15600, the lowest point since November 2020. As of press release, the latest price of Bitcoin is $16671.2, with a daily decline of 6.95% and a weekly decline of 17.67%. The decline has expanded to 74.92% for the year. Other cryptocurrencies have also been almost completely wiped out. The latest price of the token FTT on the exchange FTX is 2.72 US dollars, a decrease of 42.84% during the day and 88.82% during the week.
According to Coinglass data, a total of 364000 people sold out in the past 24 hours, and nearly $700 million in funds evaporated overnight.
On November 10th, Binance announced that based on the results of due diligence and news reports of improper handling of customer funds and investigations by US regulatory authorities, the company has decided to abandon its potential acquisition of FTX. Just a day ago, Zhao Changpeng, the founder and CEO of Coin An, announced on social media that due to the liquidity crisis of its competitor FTX, Coin An will acquire FTX.
If the acquisition is not successful, FTX may encounter situations where user assets cannot be redeemed. This event is no less than the impact and destruction on the industry caused by events such as the bankruptcy of the Mt. Gox exchange and the hacker attack on the early Ethereum project TheDAO. This is an important test for the long-term development of the entire encryption market and the confidence of investment institutions, and there will be more chain reactions in the future Yu Jianing, co chairman of the Blockchain Special Committee of the China Communications Industry Association, told reporters from China Times.
FTX wall overturned, everyone pushed
On November 10th, according to sources quoted by Bloomberg, FTX CEO Sam Bankman Fried (SBF) stated in communication with FTX investors that FTX faces a funding gap of up to $8 billion and if new funds are not raised, it will need to apply for bankruptcy protection. The person revealed that FTX is attempting to raise rescue funds in the form of debt, equity, or a combination of both.
The reporter learned that currently, the FTX website shows that the account opening service has been closed and the withdrawal service has been frozen, and it is strongly recommended that existing users do not make any further deposits. But the 'aftershocks' that FTX is facing are still constantly coming.
On November 10th, according to foreign media reports, the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are investigating whether FTX has properly handled user funds and its relationship with FTX.US and Alameda Research. According to insiders, the SEC's investigation began a few months ago with the aim of investigating FTX.US and its cryptocurrency lending activities.
At the same time, multiple cryptocurrency related institutions have issued statements or announcements to clarify their relationship with FTX. On November 9th, DigitalX, a cryptocurrency fund listed on the Australian Stock Exchange's DCCExchange, decided to liquidate its holdings of FTX (FTT) tokens and has sold off approximately $1 million worth of FTT. Lisa Wade, the head of DigitalX, stated that the cleared FTT accounts for approximately 2% of the fund's total cryptocurrency holdings.
On November 10, FalconX, co-founder and CEO of FalconX, an encryption financial services company, tweeted that FalconX, as one of the largest participants in the encryption market, cooperated with most major liquidity providers, including Alameda and FTX, but had no risk exposure to Alameda and little risk exposure to FTX. On the same day, NEAR Foundation announced on Twitter that its risk exposure to current market development related to FTX and Alameda was very small, and it did not hold any funds on FTX.
In response, Yu Jianing stated that the current market environment is poor, with insufficient investor confidence. Many investors choose to focus on selling or withdrawing funds, which leads to internal liquidity tension and even a liquidity crisis on the platform. If the market continues to experience significant fluctuations in the future, there may be more cases of crypto platforms or institutional lightning strikes.
Once a liquidity crisis occurs, it will trigger a chain of panic. Without external intervention, the probability of relying on the platform itself to solve the problem in the short term is relatively low. In previous cases, platforms that can solve the problem generally rely on external institutions for financial assistance, cooperative institutions to relax conditions, and platforms to sell equity to alleviate short-term liquidity pressure. However, platforms that cannot solve the problem are acquired or declared bankrupt Yu Jianing said so.
According to public information, the FTX trading platform was established in 2019, and its token FTT market value exceeded hundreds of billions of dollars, attracting hundreds of thousands of people overseas.
Wang Juan, Secretary General of the Digital Economy Special Committee of the Beijing Computer Society, told reporters from the China Times that FTX is a rapidly growing emerging top exchange, thanks to its founder's deep understanding of traditional financial trading systems and legal rules, as well as their mastery of the marketing culture of the currency circle. The FTX team is considered a star in the currency circle, and the growth rate of the exchange is astonishing. Unlike traditional exchanges such as Coin An, decentralization is not the core of FTX, but rather the speed, volume, and scale of trading. FTX rapidly achieved scale expansion and revenue expansion by continuously increasing its holdings, continuously pledging, and speculating in the operation of its own exchange currency.
"Correspondingly, when liquidity problems occur, there will be no ability to effectively disperse and hedge risks. The price of underlying assets will fall, the collateral insolvency will be sold, and the price will fall further. In such a cycle, the entire FTX empire will quickly become a risk black hole. Therefore, investors will find that FTX collapses faster, even if Yuan'an issues a letter of intent for acquisition, it will still find that such a large hole cannot be filled after making a back adjustment." Wang Juan said.
The victim of 'involution'
A reporter from China Times learned through analysis that after the risk of FTX liquidity issues spread, seven trading platforms have announced in the past 24 hours that they will release "Merkletree" reserve certificates to improve transparency. The seven trading platforms are Binance, Gate.io, KuCoin, Poloniex, Bitget, HuoCoin, and OKX.
The reporter learned that Merkletree is a data structure used in computer science applications. In Bitcoin and other cryptocurrencies, Merkletree is used to encode blockchain data more effectively and securely. Using Merkletree will allow exchanges to store the asset hash values of each user account in Merkletree's "leaf nodes", which can audit these assets and have third-party verification of the holdings of all users, thereby improving transparency.
The risks exposed by FTX will raise more regulatory concerns about the cryptocurrency market. In fact, many countries have started reviewing cryptocurrency exchanges from the perspective of investor and consumer protection. Wang Juan said that for the cryptocurrency market as a whole, compliance is a well-known issue for all trading houses and investors. In the future, there will be events, investigations, and penalties as the cost of compliance, It will also bring about the improvement of the regulatory system and the maturity of market rules.
In Wang Juan's view, compared to the overall concern of the outside world about this incident, there are many rumors within the coin circle about the "centralized" exchanges being eliminated, the traffic and user returns being divided, and the temporary transfer of regulatory firepower, indicating the game between encrypted exchanges.
International independent strategy researcher Chen Jia told reporters from China Times that among the series of issues exposed in the current crisis of the US cryptocurrency exchange, the challenges related to malignant mergers and acquisitions, extreme arbitrage, and consumer rights protection in the financial market are universal in the US stock market. Especially in this incident, almost all of the protagonists are publicly available and legitimate financial asset platforms in the United States, and their financial micro operations are essentially no different from the three mainstream stock exchanges regulated by the SEC. This also reflects the cruel pattern in the US capital market where when a major asset class rapidly declines, there will be a serious "involution" within the industry, even if the industry's development expectations are lowered, it will also erode competitors.
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