The troubled cryptocurrency exchange FTX seemed doomed to go bankrupt yesterday as Binance refused to inject some much-needed cash into the troubled entity, dragging the entire cryptocurrency industry, as well as U.S. growth stocks into a well-known dilemma. Although FTX has since seen a silver lining of mergers and acquisitions, the basic dynamics of Bitcoin and other cryptocurrencies continue to deteriorate as negative momentum is now releasing a series of second-order effects.
Let's start with the good news. , founder of Tron, a blockchain-based and entertainment-focused digital platform Tron (Tron), said on Twitter that his company is currently working with FTX to propose a "solution" for the exchange's liquidity shortage and design a "way forward". Sun continued to point out in another tweet.
"My team has been working day and night to avoid further deterioration. I am confident that after taking a holistic [sic] approach with our partners, the situation is controllable. Stay tuned."
Before discussing how Bitcoin is affected by this sluggishness, let's review the basic facts of the FTX legend. For those who may not know, when Binance announced the sale of its FTT tokens, FTX basically suffered a run of because Alameda Research---FTX founder Sam Bankman-Fried (SBF)'s trading unit contains too much risk on its books, which also amplifies the risks of the FTT token ecosystem, according to Binance.
Previous FTX incentivizes its users to hold FTT tokens by offering attractive transaction fee discounts along with a range of other rewards. The exchange maintains the value of FTT by repurchasing FTT coins with one-third of its trading commission and then destroying it. In fact, FTX and Alameda are running a Ponzi scheme where Alameda is able to get FTT coins at very cheap prices (by pre-mining, etc.), while FTX artificially raises the price of the coins by burning them regularly. Alameda then borrowed about $6 billion in FTX client funds as collateral. These client funds are used by Alameda to make leverage bets. However, when Binance decided to sell FTT, the game ended, and the released cascading liquidation hit the price of the coin. With Alameda collateral crashing and FTX's withdrawal requests experiencing increased, the exchange has found itself on the verge of bankruptcy.
FTX now requires about $8 billion in cash injection to maintain solvency , and the exchange has also suspended all entry and withdrawals.
It is the fear of the spread of the epidemic that has dug up the last trough of Bitcoin price. And these concerns still make sense. ZeroHedge has compiled a comprehensive list of entities associated with FTX. For example, Sequoia Capital has now cancelled its $210 million stake in FTX . Other investors include Japanese giant SoftBank, Singapore's Temasek , BlackRock, Ontario Pension Fund, Tiger Global, Circle, Paradigm, Ribbit, MultiCoin, VanEck, Thoma Bravo, Alan Howard, etc. If the exchange goes bankrupt, all these entities will have to cancel their FTX shares, i.e., the value is zeroed.
FTX is the last straw that broke the back of Bitcoin. The world's most important cryptocurrency is now likely to fall to the $13,000 price level.
As another manifestation of risk transmission, Solana was hit by her close ties with SBF. In addition, Tether and Tron's stablecoins USDD have lost their $1 peg ability.
Bitcoin hit the $15,000 price mark yesterday. Bitcoin’s price has now fallen below the average electricity cost of mining the world’s premier cryptocurrency. These sluggish prices have caused serious pain to Bitcoin miners who are now facing a difficult choice to either shut down their business or sell their holdings of Bitcoin just to keep it running. There are continuing concerns that widespread miner surrender will put Bitcoin in trouble, forcing cryptocurrencies toward a price level of $13,000. Some people now believe that Bitcoin may be lower, perhaps below $10,000.
These fears have had a considerable impact on countries such as El Salvador, which have maintained their exposure to Bitcoin at a high level. Given the fact that El Salvador's bond yield in 2023 has just hit the highest level since the early summer cryptocurrency "mining crash".
Today’s situation is similar to Bitcoin’s previous cyclical lows, which are caused by the tragedy of Mt Gox and Bitmex. The exchange collapse has become a predictable sign of Bitcoin’s cyclical bottom.
As Santiment's above tweet shows, this idea is now attracting people to buy downward mentality for Bitcoin.
