FTX Liquidity Crisis Causes Contagion Fears Across Crypto Industry

Contagion fears are spreading across the cryptocurrency industry as market participants vie for who is exposed to Alameda Research, Sam Bankman-Fried’s secretive digital asset trading firm.

Alameda, a proprietary trader who has been a low profile in the entrepreneurial crypto empire, is at the center of the storm that has engulfed his crypto exchange. FTX.

Market concerns over Alameda’s financial health accelerated, creating a wave of customer withdrawals on FTX and Bankman-Fried call for help From bigger rival Binance.

as an effect of shock deal Traders were worried that the collapse of Alameda, one of FTX’s biggest traders, would quickly reverberate through the market.

“[Alameda] Rushing to liquidate book assets in order to meet their obligations, among which there are many. In addition to its loans to FTX, Alameda is also an active participant in decentralized finance,” said Sean Farrell, head of digital asset strategy at market research provider Fundstrat. “There are good reasons to believe that the risk of further transmission remains.”

Binance declined to say whether the trading company would be included in its FTX acquisition plans. The relief measures may help protect the digital asset industry and exchange customers from further impact, but they will increase the risk of trading.

Crypto traders fear that Binance will leave Alameda to support itself, and the unwinding of its positions will lead to digital asset markets already reeling from the near-collapse of FTX and a two-thirds drop in asset values ​​this year. It is widely assumed that it will deal more blows. .

Fabian Astiq, head of decentralized finance and digital assets at rating agency Moody’s, said: “Cryptocurrency players are reacting quickly to news and rumors, and as a result, they are far more likely than we have seen in traditional finance. A liquidity crisis is occurring fast.

Bitcoin, the largest cryptocurrency, fell 5.4% to $17,700 on Wednesday, nearing a two-year low, while Ethereum fell 9.2%. Shares of U.S.-listed cryptocurrency exchange Coinbase fell 6%.

U.S. billionaire Mike Novogratz’s crypto financial group, Galaxy Digital, has exposed nearly $77 million in cash and digital assets to FTX on Wednesday, of which $47.5 million has been withdrawn. said.

Others rushed to reassure the market that they were not exposed to the FTT, the in-house currency for trading on exchanges and FTX. CEO) said his company has “no material exposure to FTX or FTT” and no exposure to Alameda.

Most at risk are the companies that lent assets to Alameda, as well as crypto projects in which the trading firm has invested heavily, which could be forced to sell to balance the books.

The company is a major backer of blockchain Solana, whose native token suffered losses in volatile trading after losing as much as 50% of its value against the dollar Wednesday night.

“I don’t see the situation [Alameda] I will be back from now on. . . I think they were betting on the value of the FTT token,” said a person familiar with the matter. “If there really was what they said they had, Alameda could have fixed this, and this clearly shows they don’t.”

Until recently, Alameda was seen as a solid counterparty for lenders and hedge funds across the cryptocurrency sector, said John De Wet, chief investment officer of zerocap, a crypto asset manager that has done business with Alameda in the past. said it was.

“Alameda was a respected company,” he said. “I think there are many companies that would have touched on Alameda.”

The trading company was founded by Bankman-Fried in 2017 and has expanded its activities since then, pursuing arbitrage trading opportunities on exchanges in various countries and emerging crypto markets.

“Alameda came before FTX. It took the balance sheet, provided the liquidity to the exchanges and got the spreads. It also needed directional betting as a prop trade,” said de Wet. says.

The scale of the pain will depend on whether Binance also backs Alameda. Late Tuesday, an FTX spokesperson told The Times Financial that “Alameda is included in the deal.”

Binance has refused repeated requests to clarify its position. That silence will likely strengthen the view of those in the market who think they will allow trading firms to fail.