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The War Is Over!: Binance Announces FTX Buyout And The Market Recovers

Did Binance just do what we think it did? The world’s biggest cryptocurrency exchange by trading volume will likely buy one of its biggest competitors. The market was in turmoil, the players were in panic mode, but this news calmed the waters in a big way. What’s next, though? Will Binance actually go through with the buyout? Is the deal final? And what does this story says about FTX’s business model? Were they fractional-reserving their way to success?

Let’s analyze the official but not abundant information out there and try to reach our own conclusions.

Sam Bankman-Fried Bends The Knee

After a whole morning of radio silence, the mind behind FTX and Alameda Research finally spoke. In a Twitter thread that will live for the ages, Sam Bankman-Fried was as vague as one can be. “We have come to an agreement on a strategic transaction with Binance for FTX.com,” he tweeted. Then, he announced that “our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1.”

Wasn’t that supposed to be the case from the beginning, though? 

Then, Bankman-Fried proceeded to effectively declare a winner. “A *huge* thank you to CZ, Binance, and all of our supporters. This is a user-centric development that benefits the entire industry,” he tweeted about his new boss. “Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators. We are in the best of hands.”

Is the deal set in stone, though? According to River’s CEO Alexander Leishman, “The DD on this deal is going to take forever. Bankruptcy still on the table if Binance decides they don’t want to touch it after digging deeper.”

BNBUSD price chart - TradingView

BNB price chart on FTX | Source: BNB/USD on TradingView.com

The Binance CEO Announces The Win

Allegedly, CZ knew what he was doing the whole time. After distancing himself from the concept of war and saying Binance was focused on building, today CZ really showed his true colors. “This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch,” he humbly tweeted. 

However, CZ is admitting to a liquidity crunch that shouldn’t be there. And then, he clarifies that the deal isn’t done yet. “There is a lot to cover and will take some time. This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time.”

Analyzing the little data we have, DeFinace Capital’s Arthur Ox tweeted, “Given how little time it took to close this deal. It’s likely Binance acquire FTX for nominal/negligible amount and assume all the liabilities of FTX.” And then, he gave advice, “if I am previous round investor of FTX, I will probably start engaging litigation lawyer now.”

The Future For Binance And FTX

The analysts are having a field day with this story.  Dylan LeClair, who’s been covering the ins and outs from day one, recently tweeted that the resolution “confirms that FTX is insolvent without a bailout from Binance” and that “Alameda was speculating with user funds.” Those are severe accusations, but he’s got some data to back them up. 

Questioning the liquidity crunch, LeClair asks, “was your “proprietary trading desk” directionally trading using user funds. We could all see the movements flooding back from Alameda wallets on-chain yesterday as reserves got depleted.” Taking it to the next level, economist Tuur Demeester is concerned with the implications, “If Binance buys FTX and hence takes over the claims of its depositors, it seems likely that Binance then would also become (or remain) a fractional reserve operation.”

What a time to be alive.

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The Binance Vs. FTX War: Here Are The Most Recent Stats & On-Chain Data

Is this the beginning of the end for FTX and Alameda Research? Or will both organizations come out stronger on the other side? As NewsBTC reported, Binance’s CZ smelled blood in the water and announced his exchange was selling their FTT reserves. That created a sort of a bank-run that left FTX in a dangerous position. Are both of the Sam Bankman-Fried-led organizations’ destinies tied to the FTT token? Or will they be fine even if it falls?

In the most recent Bitcoin Magazine Pro report, they describe the current situation as, “a wave of panic taking shape that questions the solvency of both FTX and Alameda Research. As a result, we’ve seen nearly $1 billion in assets and token values fly out of known FTX and Alameda addresses over the last week.” Not only that, both FTT and BNB are falling. And Alameda and FTX are working overtime to keep FTT over $22.

We’ll cover all of that and more, but first, let’s go to another BM Pro report in which they described the situation that led to all of this. A document detailing Alameda Research’s reserves leaked and the whole world learned that the firm held approximately 90% of the total FTT token supply. Their sister company, FTX, issues that coin. And that’s problematic.

“It’s reported Alameda was holding $5.82 billion of FTT on June 30th, while the market cap of FTT at the time of the report was $4.2 billion. This is a result of some of their asset allocation being held in locked altcoins, which, similar to VC investments and employee stock compensation programs, has a locked/vesting period, only this time it’s using smart contracts. It should be noted that Alameda apparently applied a 50% haircut to all “locked” assets, but one could make the case that this is still generous accounting.”

There are really interesting caveats in there.

FTTUSD price chart - TradingView

FTT price chart on FTX | Source: FTT/USD on TradingView.com

FTX Is Down And Binance Is Up

The bank run seems to be on. Wallets associated with FTX are moving funds like there’s no tomorrow. The exchange’s stablecoin balances “have been depleting at a rapid pace as customers move to get funds off the platform.” And that’s not their only worry, they also have to defend the $22 floor for FTT, but we’ll get to that. This is a zero-sum game, so someone has to be winning while FTX is losing. Back to the latest BM Pro report:

“It’s a stark difference to see $451 million in stablecoins flow out of FTX over the last 7 days versus the $411 million that have flowed into Binance. That tells anyone in the market that the exchange giant (Binance), which already has approximately 60% of the volume in the entire space across both spot and derivatives markets, is out for blood and stands to gain during this FTX situation.”

This all might seem like fun and games between two giants, but the reality is this: if FTX falls, the whole crypto market will tumble. And the contagion effect would probably be tremendous and take several companies and projects down with it. “There’s a broader risk to the market here as we see Alameda unwind many other positions across tokens and bitcoin that will be used to raise additional capital,” BM Pro wrote, “we’re just in the beginning stages on what may play out here.

The $22 Level

Why is team Sam Bankman-Fried so determined to defend FTT’s $22 level? Alameda Research’s CEO, Caroline Ellison offered CZ, “if you’re looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22!” There’s that number again. Why are they so obsessed with it? According to BM Pro: 

“Alameda would likely not have such a vested interest in defending this level if it was not leveraged. Otherwise, they would let the market fall as much as it wants and simply acquire FTT at a lower price.”

Is that undeniable proof that FTX and Alameda are leveraged and their destinies are tied to FTT? Not really. It suggests it, though. “The exchange rate differential between the FTT price on FTX vs. Binance has pushed to historic highs as Alameda and crew attempt to defend their token. Meanwhile, CZ and an army of speculators have begun to sell and go short FTT.” 

We might be witnessing “a classic speculative attack unfold,” says BM Pro. However, they feel it’s even deeper. “There is a much more important battle going on, and the FTT exchange rate is a matter of solvency for Alameda.” According to analyst Dylan LeClair, the whole situation “feels like I’m watching an emerging market central bank attempting to defend its currency against speculators.”

The question is, can they?

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Controlling The Chaos: Alameda Ventures Bails Out Voyager With $200M & 15K BTC

Apparently, Voyager Digital is out of the woods. The company ran into liquidity issues when Three Arrows Capital failed to pay a huge loan to them. Welcome to another chapter of the crypto death spiral caused by the Terra/ Luna collapse. Who came to the rescue this time? Sam Bankman-Fried’s other company, Alameda Ventures. Is this man bailing out crypto or is he taking total control of the industry?

In a recent press release, Voyager Digital announced that it “entered into a definitive agreement with Alameda Ventures Ltd. related to the previously disclosed credit facility, which is intended to help Voyager meet customer liquidity needs during this dynamic period.” That’s a way to put it. The company received “US$200 million cash and USDC revolver and a 15,000 BTC revolver.”

This morning, we announced a definitive agreement with Alameda Ventures for a $200 million dollar cash / USDC revolver and a 15,000 BTC revolver.

Read today’s release: https://t.co/8wPfzcaI6K

— Voyager (@investvoyager) June 22, 2022

As a reminder, yesterday transpired that FTX, also owned by Bankman-Fried, bailed out BlockFi with $250M. At the time, we described the situation as follows:

“Over the last few weeks, the crypto market has been trending down. The contagion effect of the Terra/ Luna extinction event rocked every company out there, most of all those who offered yield on cryptocurrency deposits like BlockFi and Celsius and hedge funds like Three Arrows Capital. These companies’ problems and possible liquidation of assets, in turn, sent the crypto market into even more turmoil.”

The Voyager case fits right into that description.

Sam Bankman-Fried’s Loan To Voyager, The Conditions

The rumors were already flying. On June 16th, analyst Dylan LeClair tweeted “Speculation here, but in its quarterly report, Voyager had loaned $320m to a singapore based entity named “counterparty b”. One has to wonder whether “counterparty b” was 3AC and if so, how much of a hit Voyager took?” The answer came quicker than anyone thought. 

Speculation here, but in its quarterly report, Voyager had loaned $320m to a singapore based entity named "counterparty b".

One has to wonder whether "counterparty b" was 3AC and if so, how much of a hit Voyager took? $VOYG shares are down 33% over the last two days… pic.twitter.com/sCiYskwLEq

— Dylan LeClair 🟠 (@DylanLeClair_) June 16, 2022

In the press release, Voyager explained the loan:

“As previously disclosed, the proceeds of the credit facility are intended to be used to safeguard customer assets in light of current market volatility and only if such use is needed. In addition to this facility, as of June 20, 2022, Voyager has approximately US$152 million cash and owned crypto assets on hand, as well as approximately US$20 million of cash that is restricted for the purchase of USDC.”

The loan comes with “certain conditions,” among them:

  •  “No more than US$75 million may be drawn down over any rolling 30-day period.”
  • “The Company’s corporate debt must be limited to approximately 25 percent of customer assets on the platform, less US$500 million.” 
  • “Additional sources of funding must be secured within 12 months.” 

Voyager Digital price chart on OTC | Source: TradingView.com
It’s All About Three Arrows Capital Right Now

The press release confirms the rumors, the Singapore-based entity named “counterparty b” was 3AC. “Voyager concurrently announced that its operating subsidiary, Voyager Digital, LLC, may issue a notice of default to Three Arrows Capital (“3AC”) for failure to repay its loan.” In a recent article, our sister site Bitcoinist broke down the hedge fund’s situation:

“The crypto fund had been directly in the crosshairs of the Luna crash with exposure of more than $200 million and speculated to be as high as $450 million. At first, the firm had appeared to bounce back from the Luna collapse but it would be soon obvious that 3AC was in a more perilous position than investors thought.”

The Voyager situation makes it even more obvious. The company’s “exposure to 3AC consists of 15,250 BTC and $350 million USDC”. So, the Alameda loan covers most of it. What did they have to give in return, though? Formally, “Alameda currently indirectly holds 22,681,260 common shares of Voyager (“Common Shares”), representing approximately 11.56% of the outstanding Common and Variable Voting Shares”. If everything goes well, Voyager has nothing to worry about. But, what if it doesn’t?

Voyager levered 3AC up with 650million of their customers money, leaving them with only 150million cash reserves.

Who tf is in charge of risk over there, Merrill Lynch?

— Tyler (@ApeDurden) June 22, 2022

In any case, for those that like gossip, here’s the story as narrated by Voyager:

“The Company made an initial request for a repayment of $25 million USDC by June 24, 2022, and subsequently requested repayment of the entire balance of USDC and BTC by June 27, 2022. Neither of these amounts has been repaid, and failure by 3AC to repay either requested amount by these specified dates will constitute an event of default. Voyager intends to pursue recovery from 3AC and is in discussions with the Company’s advisors regarding the legal remedies available.”

Answers And Conclusions

The crypto industry as a whole is in a precarious situation. And there’s one question at the center of it, is Sam Bankman-Fried controlling the chaos or is he taking total control of the industry?

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Bullish AF: Bitcoin At $42K, Comparing Today’s Leverage With That Of February

Bitcoin reached $42K before, but not with these characteristics. The market seems healthy and practically unleveraged. Greed is just showing its face after months of Fear. How did we get here? Calmly and consistently stacking sats, that’s how. What does this mean for the future of BTC’s price? Is the rocket about to take off?

Related Reading | Volatility Inbound: Bitcoin Traders are Upping Their Leverage as Election Nears

Before going into that, let’s look at the chart from Bitcoin Magazine’s Dylan LeClair. It gives the US Central Bank balance sheet a run for its money as the most bullish Bitcoin chart.

Leverage the first time we hit 42k $BTC in February compared to now.

This is all spot driven. pic.twitter.com/QjtJ0zWSgj

— 🟠Dylan LeClair🟠 (@BTCization) August 6, 2021

The difference is astonishing. In February, Bitcoin got here by borrowing money from exchanges. The futures market was on fire and growing. The bloodbath was a month away.  Nowadays, leverage is just raising its head after a few months in the red. The casino is almost empty. Real money drove the climb back from hell. Gradually, step by step.

Does this mean we’re up for a sudden blast into space?

BTC price chart for 08/07/2021 on Bitstamp | Source: BTC/USD on TradingView.com
If Not From Leverage, Where Is The Money Coming From?

Some institutions are probably buying. Chances are we’ll see Bitcoin holdings declared next quarter. However, according to on-chain analyst Will Clemente, there’s evidence that real, everyday people, are constantly joining the network. And those new Bitcoiners are joining an army of believers that never stop buying.

Bitcoin’s Gini coefficient is getting healthier and healthier. According to William Clemente, when you filter out ETFs and Grayscale, on-chain analytics show that “over time whales are just distributing their coins.” According to him, entities with less than 10 BTC never stop buying. “Since May 19th, retail has been accumulating more heavily than the whales have.” Each day that passes, Bitcoin’s “healthy distribution of the network” gets better and better.

The Dollar-Cost Averaging investment strategy is gaining traction among a sector of the population. And it seems to be spreading. Investopedia defines DCA as:

An investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset’s price and at regular intervals. In effect, this strategy removes much of the detailed work of attempting to time the market in order to make purchases of equities at the best prices. 

Related Reading | The One Line In Bitcoin Everyone In Crypto Is Watching

What Will Happen When Leverage Comes Back Into The Picture?

If greed is returning and leverage is available, people will use it. What will happen then? Go back to LeClair’s chart and check out October 2020, the last time that the leverage was in the red. Could we be entering a run the size of what followed that? The chart that this pseudonymous analyst presents suggest that.

#Bitcoin weekly candles are sized similar to the run from 11k to 19.5k.

19.5k is where we had serious resistance for few weeks (as now with 42k). Then it was off to the races and the price tripled.

Tripling from here is 120k. pic.twitter.com/1gBFbM00MX

— Kevin ₿ebee (@kevinbebee) August 6, 2021

We might be at the cusp of a historical moment. The indicators and characteristics seem healthy and ready for blast-off. The community’s morale is high despite the regulatory threats of late. If all of these analysts are right… we’ll see you on the moon, bulls!

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