Crypto’s self-appointed savior just reached for a lifeline

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It was an amazing, curse-loud day at work in the crypto world, which, even on its best day, is a volatile and strange place.

Here’s the deal: Cryptos were down all morning due to concerns about the solvency of FTX, the trading platform founded by Sam Bankman-Fried, also known as SBF.. He is an entrepreneur whose name often appears alongside descriptors like “whiz kid,” “savior,” white knight, “digital Warren Buffett,” etc. He is, in short, a crypto celebrity (and a 30-year-old billionaire).

SBF had dismissed rumors of FTX’s liquidity problems, even as its biggest rival Binance said it would liquidate $580 billion it held in FTX’s in-house token.

After, in a truly unexpected turnBinance said that it had offered to buy FTX to solve its liquidity crisis.

“This afternoon, FTX requested our help,” Zhao “CZ” Changpeng, the CEO of Binance, tweeted on Tuesday, citing a “significant liquidity crisis.”

Hardly anyone saw that bombshell coming, given the public feud and apparent bad blood between Bankman-Fried and Zhao.

“I’m really surprised by this,” an industry executive told me. “The FTX failure… would be like a Lehman Brothers event for space. But if they’ve been successfully rescued, then that would probably prevent things in the pass.”

While the deal is still in flux, a partnership between FTX and Binance, the two largest cryptocurrency exchanges by volume, would mark a tectonic power shift in the industry.

The news sparked a brief rally in digital assets, but it was not enough to calm anxious investors.

Bitcoin fell more than 10% on Tuesday to hit a 52-week low around $17,600, according to CoinDesk. FTX Internal Currency Cratered FTT at $5.24, losing 75% of its value. Other digital assets and stocks linked to the industry, such as Coinbase, also fell.

SBF is one of the most influential figures in crypto. Over the summer, as digital assets plunged in the so-called “crypto winter,” Bankman-Fried it invested about $1 billion to bail out companies and shore up assets to try to prevent the entire industry from collapsing. He too became the unofficial ambassador, selling the promise of crypto to a skeptical mainstream financial world.

On Tuesday, however, the savior needed to be saved.

Fears about FTX and Alameda Research, the trading house of Bankman-Fried, began last week after a report published by news site CoinDesk suggested that much of Alameda’s balance sheet was made up of FTT, which is a relatively small token. little liquid.

Those fears were stoked by none other than Zhao, the head of Binance, who said that his company would be selling all of its holdings, some $580 million, in FTT, “due to recent revelations.” His announcement spooked investors and caused the FTT to crash.

In essence, Bankman-Fried was receiving a $580 million capital request and did not have the liquidity to meet it.

What happens now?

There is still a lot to discover, but we can expect digital assets to remain volatile until more details about the FTX-Binance deal are made public. Some analysts say the union could accelerate Washington’s push toward crypto regulation.

Crypto may have avoided its Lehman moment, but we are now in uncharted territory, and it is unclear who, if anyone, would be willing to take on the next bailout if Binance finds itself in trouble.

Unfortunately, I won’t be quitting my day job after all. That privilege goes to the lucky ticket holder in California, the only winner of the record $2.04 billion Powerball jackpot.

The ticket was sold at a Joe’s Service Center in California, the state lottery said on Twitter. The winner has not yet been presented, a representative he told CNNHe added: “Someone is holding on to a very important role this morning.”

Much of the world is rightly worried about midterms. But Wall Street is already looking ahead to Thursday, when the all-important Consumer Price Index report will give us an updated reading on inflation.

“Obviously this midterm election, because democracy is on the ballot, it’s a big deal in the eyes of the public,” said Peter Tuchman, a veteran New York Stock Exchange floor trader. my colleague Matt Egan. “But how much it weighs on the economy is a good question.”

In short, only one big surprise could affect the market’s reaction at this point. Stocks have risen in recent days in part because investors are betting Republicans will take control of at least one chamber, leading to a divided government.

Division means stagnation. and street wall loves stagnation

In this case, gridlock will mean Republicans can’t pass unfunded tax cuts and Democrats can’t push through unfunded spending programs, which would worsen inflation already at decades-highs, and raise interest rates, explains Matt.

“Less government, a complete gridlock, will probably benefit the stock market,” Tuchman said.

Several traders told Matt that the mid-term elections could easily be overshadowed by Thursday’s CPI, arguably the most important economic metric of the month.

“Markets can adapt to pretty much anything except the unknown,” Tuchman said. “The biggest long-term unknown in the market is the inflation story.”