As Binance acquires its rival cryptocurrency FTX, Coinbase shares and major cryptocurrencies plummet

Binance’s Deal to Buy Troubled FTX Shakes Markets. Source: binance.com

Admitting a liquidity crunch, crypto exchange FTX CEO Sam Bankman-Fried has agreed to sell the platform to rival Binance. The event shook crypto markets and affected the industry positions of rival exchanges.

Many crypto users note that Binance’s recent decision to liquidate 23 million FTT tokens triggered FTX’s liquidity crisis. Indeed, FTT fell by 30% on Tuesday, days after Binance said it will dump its holdings of the token. Some even suggested that Binance’s strategy intentionally led to the acquisition deal. However, Bankman-Fried declined all rumours about any conflicts between the two exchanges.

Binance CEO Changpeng “CZ” Zhao commented that crypto exchanges should learn some lessons from the event. Firstly, they should never use native tokens as collateral. Secondly, they should not get loans and be transparent about their reserves. Besides, Zhao said his exchange will soon start a Proof-of-Reserves audit system to allow verification of its digital asset holdings.

The agreement is expressed via a non-binding letter of intent. Besides, it still depends on regulatory approval, and it is unclear whether antitrust concerns would arise. However, should the deal between FTX and Binance move forward, it would be a landmark acquisition in the crypto space. Following the news, Coinbase shares tumbled below the $50 mark as the cryptocurrency platform faced concerns over increased competition.??

Impact on markets

Although Binance and FTX don’t directly compete with Coinbase, their separate entities Binance.US and FTX US do. A Binance-FTX combination would illustrate a “significant consolidation and a global crypto powerhouse in crypto trading,” said Bernstein analyst Harshita Rawat. In particular, it would be harder for exchanges like Coinbase to expand to international markets due to such dominance.?

Besides, bitcoin’s price tumbled well below $20,000 after the announced acquisition. By Tuesday afternoon, the largest cryptocurrency by market cap had plummeted under $19,000 for the first time since mid-September.

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