FTX has been posturing this year. Sam Bankman-Fried’s crypto exchange company has appeared cool and collected even through the worst parts of the crypto market crash. It even made headlines by bailing out failing companies and acquiring assets to grow itself. But this week, that image is shattering as the company goes on red alert and the FTX Token (FTT-USD) continues a very sudden and controversial free fall.
As of this writing, FTT is down a whopping 25% over the past 24-hour period, making it one of the biggest losers among top crypto players. The token is also seeing a 200% increase in trading volume over the same period. Naturally, this is due to liquidation by investors.
This large-scale sale follows a tumultuous start to the week for both FTX and its sister company, Alameda Research. Alameda, a private equity company also founded by Bankman-Fried, operates as a separate entity from FTX, although the companies have always been close.
Things got very uncomfortable for both companies, however, after a report showed a massive amount of Alameda’s $14.6 billion in assets was comprised of FTX Token. Of course, FTT was created and controlled by Alameda’s sister company. So, these holdings are far more controversial than if the company were primarily holding a different cryptocurrency.
This news has drawn increased scrutiny over just how close these two entities are to one another. And now, the rumor mill is turning at full capacity. FTT Token is now seeing its steepest losses of the year.
FTX Trying to Quell Panic During FTT Liquidations
The bad publicity following FTX and Alameda in the wake of this news is hard enough. But the fear, uncertainty and doubt (BNB-USD).) sowed by the news is being intensified by an FTT selloff led by FTX’s biggest competitor, Binance (
On Sunday, Binance announced that it would be selling all of its FTT as a result of the revelation. Binance CEO Changpeng Zhao expects the sale to take several months due to market conditions and “limited liquidity.” These comments are leading to a great many rumors about the state of FTX. Investors are wondering whether or not the company is risking insolvency.
Sam Bankman-Fried has taken to Twitter to dispel the rumors, assuring people that the company is in perfect health. Nonetheless, FTT is being slammed as Binance starts unloading. Already, the company has transferred 23 million tokens from a wallet to the Binance exchange. And as the company sells off these assets, it’s tanking the value of FTT.
This turn of events is certainly reminiscent of the Voyager Digital fiasco, wherein the company turned insolvent after a drop in crypto prices left it unable to cover user withdrawals. Whether or not FTX used customer funds to invest in illiquid staking markets like Voyager is unknown. However, Bankman-Fried’s comments suggest that this is not the case.
Alameda Research CEO Caroline Ellison previously offered to buy Binance’s FTT from it directly at a rate of $22 apiece. Zhao declined the offer this morning, though, choosing to “stay in the free market.” Though, as Binance continues to offload and prices drop, the company is taking far less profit than it could have through a private sale. Of course, this is surely a deliberate competitive move, as FTX is a major competitor and the companies have had plenty of beef before.
On the date of publication, Brenden Rearick did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.