Despite preparations for a rescue offer from bigger rival Binance, cryptocurrencies experienced a second day of steep falls on Wednesday as investors remained concerned about the viability of the industry and the financial state of major exchange FTX.
To address a “liquidity bottleneck” at the competing exchange, cryptocurrency giant Binance reached a non-binding deal on Tuesday to purchase FTX’s non-U.S. business. Following a week of rumors concerning FTX’s financial stability, $6B in withdrawals occurred 72 hours before the proposed agreement on Tuesday, casting doubt on the viability of one of the biggest cryptocurrency exchanges in the world. Now, markets are unclear about the agreement’s future because FTX and Binance did not reveal its details.
What Is Happening Inside the Market?
By market value, Bitcoin, the most valuable cryptocurrency, was down 5.3% on the day at $17,559 at 11:07 GMT. It followed a 10% decline on Tuesday, its worst day since mid-August. The second-largest cryptocurrency, ether, continued to decline on Wednesday and touched its lowest level since July. After falling 72% on Tuesday, FTT, the smaller coin connected to FTX, went down another 23% today. According to statistics, its market worth decreased to just $600 million from almost $3B at the beginning of the week.
The unrest at FTX is the most recent indication of difficulty in the quickly developing cryptocurrency industry. As investors fled riskier assets due to a downturn in the financial markets, cryptocurrency values have fallen this year. Bitcoin will be down about 62% in 2022 after significantly rising in 2020 and 2021. According to Kami Zeng, director of research at Fore Elite Capital Management, a Hong Kong-based cryptocurrency fund manager, investors should be cautious for now. He called it another “cautionary note” for the market.
The token utilized on Binance, called Binance coin, also suffered. With a market cap of close to $50B, the fourth-largest cryptocurrency in the world was trading at $299, down 8.8% on the day. Some experts compared the situation to the demise of the stablecoin TerraUSD and its associated token Luna earlier this year. It triggered a slew of additional bankruptcies at the Singapore fund Three Arrows Capital and the American fintech companies Voyager Digital and Celsius. FTX users can purchase, sell, and hold cryptocurrencies on the site.