The currency traded around $22 on Monday and dipped below $5 on Tuesday afternoon in New York. The selloff wiped out more than $2 billion in value in 24 hours. Binance CEO Changpeng Zhao, known as CZ, wrote in a tweet to his more than 7 million followers that he expects FTT to be “very volatile in the coming days as things unfold.” Cryptocurrencies as a category sank on Tuesday, with bitcoin and ethereum both plunging over 10%. Shares of crypto exchange Coinbase also fell by double-digit percentages, while Robinhood, which traders use to buy and sell crypto, fell about 19%. “It’s probably the most dramatic deal I’ve ever seen in the history of the crypto industry,” said Nic Carter, a partner at Castle Island Ventures, which focuses on blockchain investments. “It basically consolidates the two largest offshore exchanges into one entity, an absolute coup for CZ and Binance — and truly a disaster for FTX.” The deal between the two companies is non-binding and follows what FTX CEO Sam Bankman-Fried called “liquidity pains” at his business, which was valued at $32 billion in a funding round earlier this year. The acquisition affects only non-US businesses for FTX. The US division will remain independent from Binance. However, according to a 2021 audit, FTX’s US segment accounted for just 5% of total revenue. FTX is based in the Bahamas, where Bankman-Fried resides. Like many crypto companies, FTX created its own token called FTT, which could be bought like bitcoin although it was not as widely available. FTT owners were promised lower transaction costs and the ability to earn interest and rewards such as blockchain cancellation fees. While investors can benefit when FTT and other coins increase in value, they are largely uncontrollable and highly susceptible to market downturns. In 2019, Binance announced a strategic investment in FTX and said that as part of the deal it had taken “a long-term position in FTX Token (FTT) to help sustainably grow the FTX ecosystem.” Due to Binance’s central position in crypto and its large ownership of FTT, the company has had a particular influence on FTX and the market’s view of the company. Investor confidence in FTX was shaken over the weekend when Zhao tweeted that Binance would sell its holdings in FTT. Zhao said Binance had about $2.1 billion of FTT and BUSD, its own stablecoin. “Due to the recent revelations that have come to light, we have decided to liquidate any remaining FTT on our books,” he said. FTT, which peaked at around $78 in September 2021, was trading near $25 a day before Zhao’s tweets. It dipped below $16 on Monday and then plummeted after the deal was announced on Tuesday. According to CoinMarketCap, FTT’s IPO is valued at about $735 million, up from $2.9 billion on Monday. Bankman-Fried said that in the 72 hours before Tuesday morning, there had been about $6 billion in net withdrawals from FTX, according to Reuters. On an average day, net inflows are in the tens of millions of dollars. “The fact that Sam was willing to do this deal suggests that FTX was deeply undervalued in terms of the run on the bank that started in the last 48 hours,” Carter said. “We don’t know exactly what the issue was, whether they were lending or playing with user deposits.” FTX did not respond to CNBC’s multiple requests for comment. Earlier on Tuesday, FTX had halted withdrawals from its platform after panicked investors tried to pull out their funds – in a move that echoed the collapse of other crypto firms this year, including Celsius, Voyager Digital and Three Arrows Capital. The news about FTT raised concerns for Alameda Research, Bankman-Fried’s trading firm and FTX’s sister company. A report last week on the state of Alameda’s finances showed that a large portion of its balance sheet is concentrated in FTT, and its various businesses leveraged the token as collateral. Alameda disputed that claim, saying the FTT represents only part of its overall balance sheet. “If the price of FTT goes down a lot, then Alameda could face foreclosures and all kinds of pressure,” said Jeff Dorman, chief investment officer at digital asset firm Arca. “If FTX is the lender in Alameda, then everybody’s going to be in trouble.” — CNBC’s Kate Rooney and Tanaya Macheel contributed to this report.
