Crypto investors continued to take heat Saturday following a market plunge that has largely to do with concerns over FTX’s financial health. At the time of publication, Bitcoin was trading at $16,854 after a 1.7% drop in the past 24 hours.
Ethereum took an even bigger hit, shedding roughly 18% in the past day to trade just under $1,205 at press time. Except for FTX’s FTT token, which has dropped over 90%, Solana (SOL) and MATIC seem to have been the biggest casualties in the lineup, plunging roughly 33% and 19% respectively. In the past day, the global crypto market cap has plunged by 10.64% to sit just under $849B, with total liquidations coming in at $865.84 million based on data from Coinglass.
The crypto market drop comes on the back of news that Binance plans on acquiring FTX after it emerged that the Sam Bankman Fried (SBF) helmed exchange is facing deep liquidity issues. This week, Binance CEO CZ hinted at what caused FTX’s problems. “Two big lessons: 1: Never use a token you created as collateral. 2: Don’t borrow if you run a crypto business. Don’t use capital “efficiently”. Have a large reserve. Binance has never used BNB for collateral, and we have never taken on debt,” wrote CZ.
Commenting this week, Charles Hoskinson, founder of Cardano, attributed FTX’s woes to biting off more than it could chew. “It looks like what’s occurred is that FTX was through a series of transitive relationships closer to what occurred with LUNA then people led on,” said Hoskinson expressing concern over a larger market plunge.
Jeremy Allaire, CEO of USDC stablecoin printer Circle, noted that FTX’s situation points to deeper issues in the market. “Lack of transparency, lack of counter-party visibility, and project treasuries and balance sheets anchored in speculative tokens are root causes,” he wrote. According to the executive, FTX could be a victim of an excessive amount of the “value created” during the past bull market, which was almost entirely speculative.
Over the weekend, Binance stated that it would sell its remaining FTT holdings, triggering a discussion over the cryptocurrency’s actual utility other than speculation. “It’s imperative that we decidedly move on from the speculative value phase of crypto to the utility value phase, and that’s got to be anchored in radically more open and transparent practices,” Allaire added.
That said, given that FTX is one of the most prominent financial players in the crypto sector, the market will likely stay unstable as investors continue to digest the effects of the exchange’s liquidity crunch. Moreover, for Bitcoin, plunging below $17,000 spells an even more daunting recovery in the future as this level has acted as strong support.
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