Cryptocurrency exchange FTX has been forced to seek a rescue from its rival, Binance, in order to avoid collapse. Joshua Oliver reports in the Financial Times:
Contagion fears are sweeping across the crypto industry as market participants race to determine who is exposed to Sam Bankman-Fried’s secretive digital asset trading company Alameda Research.
Alameda, a proprietary trader, has been a low-profile part of the entrepreneur’s crypto empire, but is at the centre of the storm that has engulfed his crypto exchange FTX.
Market worries over Alameda’s financial health accelerated, triggering a wave of withdrawals from customers at FTX, and pushing Bankman-Fried to seek a rescue from larger rival Binance.
As the impact of the shock deal set in, traders worried that the collapse of Alameda, one of the biggest traders on FTX, could resound through the markets at rapid speed.
“[Alameda] will be scrambling to liquidate assets on their books to meet any debt obligations, of which there are many. In addition to the loans owed to FTX, Alameda is also an active participant in decentralised finance,” said Sean Farrell, head of digital asset strategy at Fundstrat, a markets research provider. “There is sufficient reason to believe the risk of further contagion remains.”
Binance has declined to say whether its takeover plans for FTX include the trading firm. A bailout could help to insulate the digital asset industry and the exchange’s customers from further fallout but would add to the risks of the transaction.
Crypto traders have widely assumed that Binance will leave Alameda to fend for itself, and that the unwinding of its positions will inflict further pain on the digital asset market already reeling from the near collapse of FTX and a two-thirds fall in asset values this year.
“Crypto players are reacting quicker to news and rumour, which in turn builds up a liquidity crisis much faster than one would have seen in traditional finance,” said Fabian Astic, head of decentralised finance and digital assets at Moody’s, the rating agency.
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