Binance steps away from FTX – contagion is on the horizon
Summary: Binance has decided not to acquire FTX upon due diligence of the firm. It seems plausible that FTX cannot satisfy its liabilities in terms of mainly customer deposits. This may lead to contagion and reduced liquidity across the crypto market.
Binance decided yesterday evening not to acquire troubled crypto exchange FTX upon due diligence of the firm, citing “… the issues are beyond our control or ability to help”. This follows after the two firms signed a letter of intent on Tuesday for Binance to acquire FTX, with the potential acquisition now scrubbed.
It now seems plausible that FTX has a serious hole in its balance sheet, effectively meaning it cannot fully satisfy its liabilities mainly with respect to customer deposits. This is possibly the reason for Binance stepping away from the potential acquisition of FTX. According to Bloomberg, FTX faces an up to $8bn shortfall. Bloomberg states that FTX may file for bankruptcy if the firm does not get a cash injection. This follows after FTX earlier this year allegedly transferred at least $4bn, including customer funds, to keep its highly linked trading firm Alameda Research afloat, according to Reuters. Please keep in mind that not much information is publicly available as of now, so the situation may change.
These events are altogether negative for the crypto market – and possibly other markets. It may lead to contagion throughout the crypto market, as not only FTX and Alameda may now be insolvent but other firms linked to FTX and Alameda as well. As previously one of the largest crypto market makers, it seems that Alameda has ceased much of its trading activities, ultimately decreasing the liquidity in the crypto market. Upon the enlarged uncertainty, various counterparts are likely to reduce risk across the crypto industry by e.g., reducing credit lines, which may reduce the liquidity further. We expect the increased volatility in the past couple of days to continue in the foreseeable future, as the market simply does not know what to expect, so please act cautiously.
Latest Market Insights
Outrageous Predictions 2023: The War Economy
- The constantly growing global need for energy drives the world's richest to huddle up and launch a R&D project in a size the world hasn't seen since the Manhattan Project gave the US the first atomic bomb.
French President Macron resignsThe political stalemate in France and the rise of Marie Le Pen following the 2022 elections corners President Macron, forcing him to give up on politics and resign from his position. At least for now.
Gold rockets to USD 3,000 as central banks fail on inflation mandateAs markets and central banks realise that the idea that inflation is transitory is wrong, and that prices will remain higher for longer, gold is sent through the roof, hitting a price tag of USD 3,000
EU Army forces EU down path to full unionWith continued challenges in the region and a US military that isn't aggressively enacting its former role as global policeman, the European Union agrees to create its own armed forces, bringing the whole region closer.
A country agrees to ban all meat production by 2030In an effort to become one of the global leaders on the path to net-zero emissions, one country decides to not only put a heavy tax on meat, but to ban domestic production entirely.
UK holds UnBrexit referendumFollowing a recession and domestic pressure, the United Kingdom is thrown into political turmoil that will end with a vote to wind back Brexit.
Widespread price controls are introduced to cap official inflationHistory tells us that with the war economy comes rationing and price controls. And this time is no different, as policymakers introduce strict price controls that lead to a range of unintended consequences.
OPEC+ & Chindia walk out of the IMF, agree to trade with new reserve assetSanctions against Russia have caused widespread turmoil due to US Dollar moves in countries across the globe that don't consider the US an ally. To relieve themselves from this, they leave the IMF and create a new reserve asset.
USDJPY fixed to the USD at 200 as Japan overhauls financial systemFollowing the challenges that faced the Japanese Yen in 2022, the Bank of Japan attempts to keep the currency from sliding. Unsuccessful on the long-term, Japan will launch a reset of its entire financial system.
Tax haven ban kills private equityWith the war economy comes an increased focus on national interests and sovereign nations' ability to assert themselves. In that regard, the OECD countries turn their attention on tax havens and pull the big guns out, banning them altogether.