Cryptocurrencies were under pressure for a second day Wednesday as the market digested the fallout of Binance’s planned bailout of FTX.
Bitcoin hit a new bear market low of $16,924.68, according to Coin Metrics. It was last down by 5%, while ether fell 10% to $1,152.34.
The Solana token continued its slide. It was last down 30%, after plunging 26.4% on Tuesday. Alameda Research, the trading firm owned by Sam Bankman-Fried, who also runs FTX, was a big and early backer of the Solana project.
“Market factors such as providing SOL token liquidity as well as support for Solana ecosystem projects on FTX exchange has been an important driver for Solana’s success,” Bernstein’s Gautam Chhugani said in a note Wednesday. “This is an adverse event for the Solana ecosystem in the short run. Further, given FTX/Alameda’s balance sheet situation, there may be near term pressure on its Solana holdings, as the situation resolves.”
The crypto market briefly spiked on Tuesday after Bankman-Fried, also known as SPF, announced that Binance will acquire its non-U.S. operations but plummeted shortly after.
The SBF empire unraveled quickly after a report last week showed a large portion of Alameda’s balance sheet was concentrated in FTX Token (FTT), the native token of the FTX trading platform. After some sparring on Twitter with SBF, Binance CEO Changpeng Zhao announced his company was offloading the FTT on its books, leading to a run on the popular FTX exchange and a liquidity crisis.
FTT was down 10% Wednesday, after tumbling more than 75% the day before.
The bombshell is likely to set the crypto industry back, but to what extent remains to be seen. Analysts foresee further regulatory scrutiny of offshore exchanges, where the majority of crypto derivatives trading takes place. It’s also unclear how much financial contagion will spill into the rest of the market.
Additionally, Bankman-Fried had recently been lauded as a “white knight” in the industry as he came to the rescue of crypto services firms like BlockFi and Voyager that almost didn’t survive the crypto contagion of this spring.
For newcomers to the crypto market, he and FTX became the faces of the industry, securing the naming rights to the Miami Heat basketball team’s stadium last year, bringing Tom Brady and Giselle Bündchen on as ambassadors of the company, and becoming a megadonor to Democratic politics.
“Given the public-facing nature of FTX CEO Sam Bankman-Fried and the size of FTX, we believe that the week’s events could cause some loss of consumer confidence in the crypto industry, beyond that seen in the aftermath of the 3AC, Celsius, and Voyager events that took place earlier this year,” especially if contagion takes hold and crypto prices keep dropping, KBW analysts said in a note Tuesday. “It may take time for customers to regain trust in the industry, broadly speaking (and we think regulation could help this).”