In what is, as far as I know, an unprecedented move in crypto. Binance all but kills their main competitor FTX. Then offers an olive branch while their foot still is on their throat. Let us take a look at the events that led up to this.
The leaked financial report
The leaked financial report from Alameda Research on November 4th was most likely the silver bullet CZ, the CEO of Binance, was looking for. The crack in Sam Bankman-Fried´s FTX armor if you will. Looking over this CZ most likely saw one of the biggest opportunities in his life.
What he saw was that while there was a lot of crypto. A big chunk of Alameda Research´s $14.6 billion in assets was either loans. Around $8 billion, or more than half of the $14.6 billion were loans. Of the remaining billions, a lot of it was tied up in crypto projects like Bankmans own FTX, in $FTT tokens, or in Solana. This meant that even if they wanted to liquidate these tokens, they were more than likely not going to be able to do so. Not without hurting those projects, that Bankman was a part of.
The first shot fired in the great crypto war of 2022
This meant that CZ saw a golden opportunity. An opportunity to possibly get rid of Binance main competitor, and shut Bankman up at the same time. As it has been documented, at least on twitter, that the two CEOs appear to not be the best of friends. And not see eye to eye on a lot of things. The plan was set in motion on the day after, November 5th. This was done by Binance moving their massive hoard of 23 million $FTT tokens, valued at that moment at over €580 million.
Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win -Sun Tzu, The Art of War
This move is basically the first shot fired, and what can be described as an open declaration of war by Binance on FTX. And just like Sun Tzu said in the very famous book The Art of War. CZ very much was sure that his move would have the exact desired effect. The public response did not take long. The move of that many $FTT tokens onto Binance stoked the flame of fear in the people. Was a massive dump of $FTT tokens coming, hurry sell, sell, sell.
Source: Coinmarketcap.com
The $FTT token did take a nose dive after CZ made his intentions public to sell the tokens. And with the dive in price, on top of people probably being wearier now than ever of centralized institutions failing and locking up their crypto in their death spiral. People started, what is known as, a bank run. Everyone was trying to withdraw their crypto from FTX. And this of course had an even more detrimental effect on the $FTT token. Causing it to plummet even further.
The war
In an attempt to sue for peace, and go back to the previous state of open hostility. Alameda Research offered to buy all of Binance's $FTT tokens for $22 each. Something that from an isolated financial standpoint seemed like a good deal. Binance would be able to offload all their token to a good price, while not affecting the market.
Caroline Ellison CEO of Alameda Research
But of course, simply liquidating Binance's massive hoard of $FTT tokens was never the true goal. Killing off FTX was. So CZ declined the offer and said he would rather take the tokens to the public market. Making sure to hammer in that nail in the FTX coffin that he had built. And with Binance's intention to sell the tokens publicly. Of course, the public would jump on the opportunity to sell their own tokens before the massive dump would take place.
In a show of strength, or desperation depending on how you chose to look at it. They tried to stave off the bleeding and calm everyone down. Tweeting and saying they in fact were very liquid, holding over $10 billion in assets.
The capitulation
In what can only be viewed as a capitulation, FTX when silent as they also froze every customer's assets. And with that making, every holder of crypto´s worst nightmare come true. The dreaded "not your keys, not your crypto" scenario.
Behind the scenes, Bankman was courting every actor he could think of. Looking for someone to either buy FTC or be able to bail them out. But as their deficit was getting ever larger, this was looking more and more unlikely by the minute.
Probably the biggest capitulation in crypto history
But what can only be described as a Night M. Shaymalaian twist. CZ and Binance step up and offer to buy out FTX.com. They a, as they say, trying to help with the liquidity and "saving" people crypto. Having signed a non-binding LOI, or Letter Of Intent. And they will do their Due Diligence, or DD as CZ put it.
The aftermath as the dust settles
The most important part is people's crypto. This surely means that all is fine right, and people will be able to access their crypto again. There are a few caveats. The biggest one is that the LOT is non-binding. Meaning Binance can at any point simply say that the deal is off. The biggest reason for this would, as I see it, be if they find any dark secrets while doing their due diligence in the acquisition process.
The second wrinkle is that Binance has only offered to buy FTX.com, meaning that FTXus, and any other branches that might exist, are not included in the deal. This very much leaves these customers in limbo even more than the regular FTX customers. And their future is very much unclear.
The other big elephant in the room is of course the books of FTX. Was their tweet about having more than $10 billion available to them nothing more than a desperate attempt and a lie? Or where are those funds? Bankman also tweeted, in a now-deleted? tweet, that all client's assets are fine and that they don´t invest their client's assets. Was that even more lies? Well, the disappearance of the twitter feed would suggest so.
Will this mean that Bankman will face charges, if nothing else it appears that he lied to his investors with the now-deleted series of tweets about every client's assets being "safe".
Another question I have is just how little funds did actually FTX have. It is starting to more and more look like an air castle built from the smoke of a hopium pipe. Was FTX a scam all along, in the veins of Celsius? Where they were just trying to pump it and get as much money out as possible. Of where FTX in a "fake it till you make it" faze. Having liquidity problems all along and simply trying to put on a brave facade in the hopes that the crypto winter would pass.
This also appears to confirm that Bankman lied in his previous tweets, as well as show that CZ is not the most gracious winner
When the dust settles one thing is sure. This war has caused many casualties. And whether you are a diehard capitalist or socialist. Having no competition will most likely only hurt the customers in the long run. And it also looks like CZ just could not help himself and had to rub it in Bankmans face at the very end.
My biggest takeaway and I hope yours too
The biggest thing however I think now should be apparent to everyone. Whether you share caught in the crypto war or you were just on the sidelines. That is that big companies will always do what is best for them. No matter how many of us small people will get hurt in the process. Just look at how many people presumably have had their lives and lives savings destroyed all because two CEOs do not like each other.
Sure you can argue that ultimately this was a great business move made by CZ. And I would be right there with you. It sure looks like it was. Being able to kill off your biggest rival simply by moving some crypto around and saying you are going to sell it can not be called anything but a stroke of genius. Even if $FTT would have gone to 0. It would ultimately only have cost Binance the ~$580 million, and to me, that is a cheap price to pay to kill your biggest competitor. Especially is FTX was estimated to be worth billions.
But again, when giants fight it is the little people that get trampled on. And I think that not only will we the small people be left holding the bags on this one as well. We will most likely be worse off in the coming year or so. Until a competitor can emerge that can rival Binance. If that is something that CZ will allow to happen I mean. He might just kill them off as well if they grow too big.
To summarize, big companies are not your friends. No matter what they say. When push comes to shove they will always do what is best for business, no matter who gets hurt in the process. That is the one thing you can always count on. And in the majority of cases that means ordinary people like you and me.
Links to the tweets can be found in the resource section, they appear in the order shown.
I would love to hear your take on this whole crypto war, do you think it was all conducted in a good way? Or is there too little regard shown for the common people? As well as any other thoughts you have on this, am I wrong in my conclusions or do you agree with me? If you would like to support me and the content I make, please consider following me, reading my other posts, or why not do both instead.
See you on the interwebs!
Picture provided by: screengrabs from twitter, Binance Media
Resources
- https://www.coindesk.com/business/2022/11/02/divisions-in-sam-bankman-frieds-crypto-empire-blur-on-his-trading-titan-alamedas-balance-sheet/
https://twitter.com/carolinecapital/status/1589287457975304193
- carolinecapitalhttps://twitter.com/cz_binance/status/1589703098762940416
- cz_binancehttps://twitter.com/carolinecapital/status/1589264375042707458
- carolinecapitalhttps://twitter.com/SBF_FTX/status/1590012124864348160
- SBF_FTXhttps://twitter.com/cz_binance/status/1590013613586411520
- cz_binancehttps://twitter.com/ChazzonKe/status/1590023557865959425
- ChazzonKehttps://twitter.com/cz_binance/status/1590103159506341888
- cz_binance