WOW! WOW! WOW! Here I present to you the craziest story of crypto year-to-date. It’s crazier than the Terra Luna fiasco, the 3AC Debacle or the Celsius Network insolvency. We don’t have an exact number for how much money is lost. But it appears that FTX is being bailed out by Binance to stay solvent. FTX was previously valued at $32B this past January. I suppose FTX will be absorbed by Binance and the equity will be reset to zero. But this *acquisition* is still pending due diligence. The negative equity situation cannot be ruled out.
A series of unfortunate events led to FTX’s bailout today. You can read the details here. The tl;dr version is that CZ has been mad at SBF for lobbying against Binance and DeFi in DC. Last week, FTX’s sister company Alameda Research’s balance sheet was leaked. It has $14.6B* of assets and $7.6B of outstanding loans. Out of the $14.6B assets, they got $5.8B in FTX token (FTT), $1.2B in Solana (SOL) and only $134M in cash. The rest of the assets are illiquid equity stakes and s**t tokens. Basically, this is a very shaky balance sheet that can easily become insolvent should FTT and SOL’s values drop. Alameda research will also have imminent liquidity problems if the loans get called. It is speculated that the $7.6B loan is obtained from the FTX reserve.
CZ saw a window of opportunity and tweeted the following Sunday evening (All timelines mentioned here are Pacific Time):
Binance had 23 million FTT tokens and CZ wanted to dump it. When I read the tweet on Sunday evening, the first thing I did was to ask my teammate to pull all the funds out of our FTX US account. I believe many people did the same. CZ must know that FTX is operating using fractional reserve and he was determined to get them into trouble. SBF tweeted the following yesterday morning.
My first reaction was that he said FTX is fine. But he didn’t say Alameda Research is also fine. I assume Alameda is in giant trouble. Yesterday evening, the FTT token dumping officially started. It went from ~$23 at the time of the CZ announcement to $15 last night and to $5 right now. Solana also went from $33 to $27 last night and to $24 right now. Net equity of Alameda Research’s balance sheet dropped at least another $5B. We are talking about $9.6B of questionable assets and $7.6B of outstanding loans. Alameda Research is pretty deep in the liquidation territory.
Investors fled the FTX exchanges as a result. People started having trouble withdrawing money from FTX this morning. At the same time, SBF remained silent for the whole time. Then a nuclear bomb dropped. At around 8AM this morning, CZ tweeted the following:
Apparently, FTX has liquidity issues and doesn’t have enough reserves to meet withdrawal requests so they have to be bailed out by Binance!!! Binance knocked down their major competitor FTX in a day with just ~$500M of FTT tokens. WOW!! JP Morgan of Crypto, Savior of Robinhood, Effectively Altruistic Billionaire SBF is no more. I know I sound super mean but I am really not a fan of SBF’s lobbying against DeFi. I always wonder how FTX could possibly buy all the near bankrupt CEX exchanges like BlockFi and Voyager and invest in all the new shiny projects like Aptos and Sui while running exchanges with only $1.8B of equity financing. It turns out they probably dipped into their user reserve like what Celsius Network did criminally. The loans lent to Alameda Research only made the whole situation worse. I suppose we'll never know the exact details of FTX’s finances if the acquisition goes through. But I believe the bursting of the SBF bubble is good for DeFi and blockchain development. His excessive risk taking and political posturing is really not great for the crypto community. What an amazing hand CZ played. This ultra profitable trading strategy is just next level.