The cryptocurrency market has fallen to its lowest level in nearly two years after a leading crypto exchange suffered a “significant liquidity crunch”.
Customers of FTX – the third largest exchange by trading volume – rushed to withdraw their assets from the exchange, with roughly $6bn (£5.2bn) of withdrawals triggered since the weekend.
Rival exchange Binance also announced that it would be selling its holdings of FTX’s digital token FTT, leading to an 85 per cent drop in value.
Binance CEO Changpeng Zhao, known as CZ, tweeted on Tuesday that FTX had reached out for help and that a takeover is in the early stages.
“There is a significant liquidity crunch,” he wrote. “To protect users, we signed a non-binding LOI [Letter of Intent], intending to fully acquire FTX.com and help cover the liquidity crunch. WE will be conducting a full DD [due diligence] in the coming days.”
FTX founder Sam Bankman-Fried confirmed the news, stating that his exchange had come to “an agreement on a strategic transaction” with Binance.
“Our teams are working on clearing out the withdrawal backlog as is… But the important thing is that customers are protected,” he wrote in a thread on Twitter.
“I know that there have been rumours in media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralised global economy while working to improve industry relations with regulators. We are in the best of hands.”
Despite the prospect of a deal, the overall crypto market continued to crash to around $850 billion on Wednesday morning, according to CoinMarketCap’s price index, a level that it last saw in January 2021.
After a recent resurgence, bitcoin was among the cryptocurrencies to see heavy losses as a result of the market turmoil, dropping 10 per cent in price over the last 24 hours.
“Bitcoin has been in the crosshairs of whipsaw trading after Binance chief CZ announced his plans to acquire a rival exchange,” Bitfinex market analysts wrote in a note shared with The Independent.
“In a space battered by a spate of high profile failures this year, markets are likely to remain turbulent until traders steady their nerves. A backdrop of looming rate hikes and a deteriorating global economy are only adding to a super bearish sentiment.”
