Bitcoin tumbles as investors panic over FTX’s failure

New York
CNN Business

The fallout in cryptocurrencies deepened Wednesday as investors were shaken by the failure of one of the sector’s most hyped companies.

Bitcoin tumbled 12% Wednesday, briefly dipping to a two-year low below $17,000. The digital asset has fallen some 75% from its all-time high near $69,000 a year ago. Ether, the second most popular crypto, tumbled 20% to $1,178 — also off 75% from its record high.

Virtually all other tokens were also down, fueling contagion concerns in the notoriously unregulated sector.

The losses have worsened as doubts emerge about whether Binance, the world’s largest crypto exchange, would actually go through with plans announced Tuesday to acquire its smaller rival FTX.

The crypto news site CoinDesk, citing an unnamed source, reported that Binance is now “highly unlikely” to go through with the deal. That sparked a further selloff in cryptos, which were already getting pummeled because of FTX’s abrupt failure Tuesday.

Representatives for Binance and FTX didn’t immediately respond to requests for comment Wednesday.

Even for assets known for their volatility, it’s been a brutal week.

At the core of the panic is the proposed bailout of FTX, one of the largest crypto exchange platforms, by its larger rival Binance.

On Tuesday, FTX faced a sudden liquidity crisis and agreed to be acquired by Binance — an earthquake in the crypto world. But the deal is far from a sure thing, as Binance’s CEO, Changpeng Zhao, tweeted that his company has the right to pull the plug at any time.

That uncertainty has investors on edge about whether the deal will go through.

FTX was previously valued at $32 billion and had weighed the idea of going public. Its founder, Sam Bankman-Fried, is a celebrity in the crypto scene, having ponied up millions of dollars to bail out struggling digital assets earlier this year as prices tumbled.

Bankman-Fried and Zhao had been trading barbs on social media before abruptly announcing a partnership to bail out FTX. On Sunday, Zhao announced that Binance would liquidate its holdings in FTX as speculation swirled about the company’s financial health. In essence, that forced a $580 million call that Bankman-Fried didn’t have the liquidity to meet.

In a note to staff Wednesday, Zhao stressed that there was no “master plan” to buy FTX and that he didn’t consider the deal a win for Binance.

“FTX going down is not good for anyone in the industry,” he wrote in the memo, which he later tweeted. “User confidence is severely shaken. Regulators will scrutinize exchanges even more.”

According to Bloomberg, the meltdown of FTX has already caught the eye of US financial regulators. The news site reported that the Securities and Exchange Commission and the Commodity Futures Trading Commision are investigating whether FTX properly handled customer funds, citing people familiar with the probe.

CNN Business has reached out to the SEC and CFTC for comment.

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