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Yesterday, on Nov. 8, 2022, Binance (BNB) confirmed its plans to acquire FTX, the fourth largest centralized cryptocurrency exchange by trading volume. This definitely looks like Changpeng "CZ" Zhao has won the savage rivalry between Binance and FTX. However, average crypto users have very little to celebrate.
What happened?
On Nov. 6, 2022, following the first rumors of the possible imbalance in the financial structure of crypto exchange FTX and associated trading firm Alameda Research, its rival Binance started dumpling its $500 million stake in FTT, FTX's native token. FTT started plummeting.
To keep FTX sustainable, Alameda started panic-selling its reserves of stablecoins. The two giants started attacking each other openly: FTX offered Binance to buy the rest of the FTT stake for $22 per token over-the-counter, but CZ allegedly chose "max pain."
FTX and Alameda continued selling their assets in Bitcoin (BTC), cryptocurrencies and stalecoins. Bybit CEO Ben Zhou even accused FTX of violating the agreement not to sell BitDAO (BIT) tokens.
The situation was only getting worse: FTX limited withdrawals, while Bitcoin (BTC), Ethereum (ETH) and all mainstream cryptocurrencies started falling amid the increased uncertainty. As falling assets were used as collateral with DeFis, the protocols reported liquidity issues: for instance, Abracadabra's MIM briefly lost its peg.
On Nov. 8, 2022, Binance's CZ announced that his firm come to an agreement with FTX: Binance has signed a nonbinding letter of intent (LOI) to acquire FTX and solve its "liquidity crunch." However, Binance (BNB) might reject the deal "at any moment" as due diligence procedures are underway.
After a short recovery, Bitcoin (BTC) dropped to a two-year low below $17,600; this is the most painful price level of the ongoing market cycle.
Why is FTX drama bad for crypto?
While still being very far from over, the Binance/FTX drama has already unveiled major bottlenecks that threaten the cryptocurrencies segment in Q4, 2022.
Too much power for CZ: Centralization is back?
Centralization is the first and the most dangerous roadblock for crypto progress. The funds of tens of millions people were put at risk due to the business conflict between two crypto moguls. FTT withdrawal limitations even increased the instability of a vulnerable market, proving the old mantra "not your keys, not your coins."
Then, once the deal is complete, the largest cryptocurrency exchange will acquire the fourth CEX by trading volume — and for sure, Binance (BNB) will yet again control the lion's share of crypto trading globally. EU and American antitrust authorities have already announced that they will be tracking the acquisition closely, but the segment has never been so close to being a monopoly.
Direct losses: Investors and FTT holders in panic
FTX's insolvency also affected its investors, i.e., almost all top-league crypto-focused VCs. In five rounds, the platform raised over $3 billion at an $8 billion valuation.
FTX US raises $400 million from SoftBank, Paradigm and others in a deal valuing the crypto exchange at $8 billion https://t.co/j8V1W38bLK
— Bloomberg Crypto (@crypto) January 30, 2022
As such, the collapse of FTX and Alameda might result in a series of such events, with smaller investing corporations and other elements of global crypto Lego.
Retail holders of FTT are in an even more vulnerable position: the token lost 75% in less than 24 hours and is changing hands 95% down compared to the all-time high registered just a year ago. This is even worse than that of NFT and metaverses' small-caps.
Collateral damage: Entire segment under attack — and worst is yet to come
However, retail holders of mainstream cryptocurrencies and stablecoins suffer the most. Net crypto market capitalization dropped below $900 billion: the last time it was so low was in November 2020. This brings more pain to holders of Bitcoin (BTC), Ethereum (ETH) and other large-caps and mid-caps.
Due to ties with Alameda Research, all tokens of Solana's ecosystem (SOL, SRM, STEPN, RAY and so on) are in deep red, losing over 30% overnight.
Every next phase of the corporate war will damage retail holders severely — even those who do not have FTT, BNB and who do not use centralized exchanges and even those who only holds stablecoins. That is the shady underbelly of our nascent segment: the smallest holders suffer the greatest pain.