Crypto: the Binance-FTX soap opera continues

FTX’s seems to be a real soap opera, and Binance is exploiting the moment of market chaos to secure more market share. 

After the declaration of bankruptcy, and the resignation of Sam Bankman-Fried (SBF) as CEO of the company, rumors began to circulate about a possible flight abroad. 

The former CEO was reportedly trying to reach Dubai, i.e., a country that does not have agreements with the US for possible extradition. At first, it was suspected that he had gone to Argentina, as his private jet was reported to have landed in Buenos Aires, but he would apparently still be in the Bahamas. 

Instead, the former CEO of Alameda Research, Caroline Ellison, has reportedly already fled to Hong Kong, again with the intention of going to take refuge in Dubai. 

Since 11 November, i.e., since the declaration of bankruptcy, SBF had not tweeted, but tonight he posted a new cryptic tweet in which he says only “1) What 2) H.” 

1) What

— SBF (@SBF_FTX) November 14, 2022

Caroline Ellison, on the other hand, has not tweeted since 9 November. 

FTX’s headquarters in the Bahamas

Regarding the company’s headquarters located in Nassau, Bahamas, it was discovered that it was located in a building at One Cable Beach, purchased by SBF in late 2021 for $2 million. One Cable Beach is a luxury beachfront condominium complex.

But during this 2022 bear market, subsidiary FTX Property Holdings spent another $74 million to buy more properties in the Bahamas. Specifically, $67 million was invested in properties located within the luxury Albany Bahamas resort in New Providence.

These were properties purchased outright, where the actual community of the group’s management team lived. Of course, now FTX Property Holdings is also in bankruptcy. 

A side note: Nassau historically is also well-known especially for being the home of the so-called “Pirate Republic” created in the early 18th century by some famous Caribbean pirates. 

The billion-dollar hole in FTX’s accounts

The management group, living in luxury in the Bahamas, had created a huge hole in the balance sheet and especially in the exchange’s reserves. 

According to the Financial Times, FTX held about $9 billion in deposits from their customers, but actually had liquid reserves of only $1 billion. The other 8 billion was either not liquid, and therefore not usable for any withdrawals, or had simply been spent by the company. 

Some of that money had been loaned to Alameda Research, which was the company in the FTX group that dealt with trading and investments. 

The Wall Street Journal revealed that both the CEO of Alameda and senior FTX executives were fully aware that that money came from customer deposits. 

In other words, not only was FTX taking money from client deposits to invest it in high-risk assets, obviously without their consent, but within the group’s management team this was widely known. 

As soon as Alameda’s speculation and investment activities began to produce losses, FTX found itself overdrawn in terms of hedging their clients’ deposits so that they could no longer meet all withdrawals. 

FTX’s FTT token: Binance runs for cover

The soap opera also includes what is happening to FTX’s FTT token.

After losing 93% of its value in just one week, and 98% from the highs, suspicious movements have also been discovered. 

Not surprisingly, Binance decided to suspend deposits of these tokens indefinitely, as suspicious on-chain movements were detected by the same addresses with which the smart contract was registered. 

Specifically, it appears that the FTT token smart contract created 192 million new tokens and then sent them to a newly created wallet. The theoretical market value of these tokens would be about $380 million.

This initiative came some time after the hack that took several hundred million dollars from FTX wallets. 

Before the creation of 192 million new tokens, the circulating supply was about 133 million tokens, so with this initiative, it has more than doubled. 

It is surprising that FTT to date still has a market value above the all-time low in September 2019. 

Elon Musk and SBF and the Twitter acquisition

It is worth noting that Elon Musk reported that SBF had offered to participate in the purchase of Twitter by putting in a few billion dollars. 

However, Musk also said that this offer had triggered his “bs detector,” where bs is probably short for “bu**sh**.” 

As a matter of fact, back in April, it looked like Musk was going to accept this offer, but when he completed the acquisition in October, there was no sign of SBF or FTX on his list of investors. 

It is also worth adding that SBF is close to the US political faction of the Democrats, while Elon Musk at this time promotes the Republican one, and in October the US was in the midst of campaigning for midterm elections. 

Binance “steals” market share, FTX is almost out

As if the situation were not already hot enough, Binance decided to attack another competitor as well. 

Although the FTX affair began thanks to some news outlets’ revelations about Alameda Research’s bad accounts, it was Binance‘s co-founder and CEO Changpeng CZ Zhao who launched the first financial attack. Indeed, he said he wanted to get rid of all the FTT tokens still in his portfolio. 

FTX was one of Binance’s big competitors globally, and from the start this seemed like a clear attack to somehow harm a powerful competitor. 

Indeed, not surprisingly, SBF at one point even stated quite explicitly that CZ had won this sort of battle. 

At this point, Binance now seems to have started picking on another competitor as well. 

While not explicitly mentioning it, it seems that the new target is Crypto.com. 

It is probably no coincidence that in recent days Crypto.com’s CRO token has lost 46% of its market value. 

It all starts with CZ’s observation that the current situation could reasonably drive other crypto companies out of business. 

In fact, some companies are already known to have had funds on deposit with FTX and have now effectively lost them. For example, BlockFi had to suspend withdrawals precisely because of such shortfalls. 

The attack on Crypto.com, however, follows the affair of massive movements of tokens between the exchange’s wallets in order to make its reserves public and verifiable. 

Binance is actually doing something similar as well, but CZ used the occasion of those Crypto.com moves to argue that if an exchange has to move large amounts of cryptocurrency before or after disclosing its wallet addresses, it is a clear sign of trouble. 

Indeed, Binance does not appear to have needed to make large on-chain movements to prove its reserves, but merely disclosed the public addresses. Crypto.com, on the other hand, had to move some funds probably to concentrate them before releasing the addresses, and CZ took the opportunity to attack it. 

It is worth adding, however, that to date there are no reports of any operational problems on Crypto.com, other than a slight slowdown in withdrawals probably due to the huge demand.