Near-Collapse of FTX Shakes Market: Bitcoin Falls to Uncharted Lows as Solana Prints ‘Violent’ Drop

The digital assets market has lost tranquil and is a sea of red on Wednesday as prices of major cryptocurrencies tank to two-year lows. This broad midweek draw-down has seen Bitcoin register roughly 10% losses in the past 24 hours, slipping down to the $17,730 zone at writing- its lowest level in over two years. The flagship coin started flashing signs of weaknesses earlier this week ahead of Tuesday's US midterm elections before eventually giving up on the $20K level yesterday as investors panicked about the Binance-FTX drama.

Latest developments around FTX trigger black swan event

In the last 24 hours, things have gone from bad to worse for FTX exchange despite assurances from its founder Sam Bankman-Fried. Late on Tuesday, FTX CEO Sam Bankman-Fried shared news of a ‘strategic agreement' for purchase by Binance while assuring that all customer holdings remain fine. Binance CEO CZ confirmed that his exchange had signed a letter of intent to buy the exchange in the near future, insisting that the primary goal is to protect the users.

Binance, an early investor in FTX before the two entities severed ties last year, could still pull out of the deal based on the outcome of the due diligence it intends to conduct over the coming days. Before the ‘significant liquidity crunch', FTX had seen tremendous growth attributable to several bold and strategic business strategies championed by its founder Sam Bankman-Fried.

It remains to be seen what CZ's next move will be, who some feel created the optimal conditions for his exchange to acquire a rival. While the Alameda Research/FTX rumors are yet to be officially confirmed, the Binance CEO ‘post-exit risk management strategy' to offload FTT holdings gave traction to the already wavering user confidence in FTX. Ergo, it was not surprising to see investors panic and the onset of massive cash flows across the board.

CZ, terming the decision to cash out from FTT as “learning from LUNA,” all but confirmed that FTX faced a potential contagion risk from Alameda's probable insolvency. The Binance chief seems to be focused on full transparency now, proposing that crypto exchanges embrace Merkle tree proof of reserves rather than fractional reserves like banks do, in which only a portion of deposits is backed by liquid cash that users can withdraw. CZ said Binance itself is on track to include proof of reserves.

FTX's sister ties with Alameda Research hurt Solana

Solana (SOL) has printed the biggest daily red candle among the top 10 cryptocurrencies, down roughly 20% on the day and 36% in the last week despite a now-faded bullish theme around its recently-concluded annual Breakpoint Conference in Lisbon. The Solana coin is suffering more losses mainly because of its links to Alameda Research, a trading firm founded by Bankman-Fried.

“Alameda selling $SOL to buy $FTT because CZ is selling $FTT to buy $BNB,” pseudonymous market analyst Immortal Crypto remarked.

Worth noting, the $SOL price only recently touched a two-month high of $38.50 over the weekend.

Ethereum (ETH) and Cardano (ADA) have also been dealt heavy blows. The former has lost all November gains and is now trading around its October lows.

ETH price course against other altcoins

Avalanche (AVAX) and Algorand (ALGO) have dumped by similar margins as well, around 25% in the last 24 hours.

Reactions from retail and institutional sides

Observers and analysts have drawn parallelism between the latest events and Terra's collapse in May. Reacting to the events that have unfolded recently, US Senator and crypto advocate Cynthia Lummis accentuated the need for better regulation of the digital assets space in the US.

Several crypto entities have also moved to quickly deny exposure to the distressed exchange and its troubled sister firm Alameda. Rival exchange Coinbase and stablecoin issuers Tether and Circle have thus far distanced themselves. From the market participants' end, the latest slump piles more pressure on investors, putting them on edge. Some traders, on the other hand, have been hit even harder.

Coinglass data shows that in the past 24 hours, almost 400,000 traders have seen their leveraged position forcibly closed, translating to nearly $858 million in total liquidation.

Liquidation across the market. Source: CoinGlass

“In my decade of crypto, think this exchange rug is by far the worst ever. Almost no time to react and lots of long-term and smart crypto ppl impacted by it […] The biggest exchange rugs of the past were incompetence or tech bugs. This one just seems to be…… just stealing customer depsits?” Cobie, the host of the Up Only crypto podcast, wrote.

From a different perspective, the Binance-FTX supposed feud couldn't come at a worse time for market participants. In the latest Week On-chain Newsletter, Glassnode analysts opined that the market is slowly recovering, citing “a convergence of market acquisition prices” and positive shift demand for Bitcoin as the catalysts. Wednesday's events weigh against this. Meanwhile, the upcoming CPI print tomorrow is shaping up to be a macro market mover that could deliver more surprises.