Leading cryptocurrency company Binance’s decision not to take over troubled crypto exchange FTX had a knock-on effect on the rest of the market yesterday, with the price of so-called stablecoin Tether dropping below its $1 peg. The currency has since recovered, but with FTX’s future uncertain, more turbulence could lie ahead.
As reported by Tech Monitor, Binance announced on Tuesday it was exploring a potential purchase of FTX, which has been suffering from a “significant liquidity crunch” in recent days.
However, a statement from Binance released yesterday said: “In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help.”
FTX troubles impact Tether stablecoin and other cryptocurrencies
The news sent ripples across all the crypto markets, with the world’s leading cryptocurrencies, Bitcoin and Ethereum, both losing 13% of their value.
It also hit the price of Tether, the world’s biggest stablecoin. Stablecoins are seen as a more reliable alternative to traditional cryptocurrencies because their price is ‘pegged’ to a real-world asset such as the dollar. Companies behind stablecoins are supposed to keep an equivalent reserve of fiat currency so that the minimum price is guaranteed, though whether they actually do this has often been questioned. Indeed, Tether appointed accountants earlier this year with a specific remit of auditing its asset reserves to try and provide additional reassurance to customers.
This added ‘predictability’ has made stablecoins a popular option for businesses and consumers wanting to use crypto assets, and many governments around the world are developing stablecoin-style central bank digital currencies linked to their own traditional monetary systems.
But earlier this year the stability of stablecoins was called into question when the stablecoin Terra collapsed unexpectedly, causing the value of other assets to drop. A warrant for Terra founder Do Kwan’s arrest was subsequently issued by police in South Korea, who are probing what happened to the currency.
In the wake of Binance cancelling its takeover of FTX, Tether’s price briefly dropped below $1, moving to $0.99. Other stablecoins such as Circle USDC also dropped below $1, before bouncing back to their peg prices.
Tether had been quick to distance itself from FTX, with CTO Paolo Ardoino taking to Twitter to state his company had zero exposure to the exchange
To be clear: #Tether does not have any exposure to FTX or Alameda. 0. Null.— Paolo Ardoino 🍐 (@paoloardoino) November 9, 2022
Maybe is time to look elsewhere.
Sorry guys. Try again. https://t.co/1bRNUGrttr
What’s happening to FTX?
FTX was founded by cryptocurrency billionaire Sam Bankman-Fried, who reportedly told employees of the company on Wednesday he is looking at various options to secure its future.
“I’m working, as quickly as I can, on next steps here. I wish I could give you all more clarity than I can,” said Bankman-Fried in a message to staff seen by Reuters. “I’ll keep fighting for those (goals), as best as I can, as long as it’s correct for me to. I’m exploring all the options.”
He added: “I’m deeply sorry that we got into this place, and for my role in it. That’s on me, and me alone, and it sucks, and I’m sorry, not that it makes it any better.”
The company’s troubles began over the weekend when the value of FTT, its native token, fell sharply over concerns about the liquidity of the platform and that of a sister company, Alameda Research. Assets worth $6bn were withdrawn from the platform by concerned investors.
It now faces scrutiny from US financial regulator the Securities and Exchange Commission, which is looking into its handling of customer funds, as well as its crypto-lending activities, according to a report from Bloomberg.
Tech Monitor has contacted FTX for comment.