221108163445 Sam Bankman Fried 1013 Restricted

Crypto’s self-appointed savior just reached for a lifeline

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CNN Business

It was a jaw-dropping, swear-out-loud-at-work kind of day in the crypto world, which, even on its best day, is a volatile and strange place.

Here’s the deal: Cryptos were down all morning due to concerns over the solvency of FTX, the exchange founded by Sam Bankman-Fried, aka SBF. He is an entrepreneur whose name often appears with descriptors such as “prodigy,” “savior,” white knight, “digital Warren Buffett,” etc. He is, in short, a crypto-celebrity (and a 30-year-old billionaire).

SBF dismissed rumors of FTX’s liquidity problems, even as its larger rival Binance said it would liquidate $580 billion it holds in FTX’s internal token.

Then, in a truly unexpected twist, Binance said it offered to buy FTX to solve its liquidity crisis.

“This afternoon, FTX asked for our help,” Binance CEO Zhao “CZ” Changpeng tweeted on Tuesday, citing a “significant liquidity crisis.”

Almost no one saw that bombshell coming, given the public feud and apparent bad blood between Bankman-Fried and Zhao.

“I’m actually shocked by this,” an operations manager told me. “FTX failing … would be kind of a Lehman Brothers event for the space. But if they’re successfully bailed out, that’s probably going to kick things off.”

While the deal is still ongoing, a tie-up between FTX and Binance, the two largest crypto exchanges by volume, would be a tectonic power shift in the industry.

The news led to a brief recovery in digital assets, but was not enough to calm anxious investors.

Bitcoin tumbled more than 10% on Tuesday to hit a 52-week low around $17,600, according to CoinDesk. FTX’s internal coin FTT cratered to $5.24, losing 75% of its value. Other digital assets and stocks linked to the industry, such as Coinbase, also fell.

SBF is one of the most influential figures in crypto. Over the summer, while digital assets tumbled in the so-called “crypto winter,” Bankman-Fried shelled out about $1 billion to bail out firms and shore up assets to try to keep the entire industry from collapsing. He also became the unofficial ambassador, selling the promise of crypto to a skeptical mainstream financial world.

On Tuesday, however, the savior had to be rescued.

Fears about FTX and Alameda Research, Bankman-Fried’s trading house, began last week after a report published by news website CoinDesk suggested that much of Alameda’s balance sheet consisted of FTT, a relatively illiquid token is.

Those fears were fueled by none other than Zhao, the head of Binance, who said his company would sell all of its holdings – about $580 million – in FTT, “due to recent revelations.” His announcement spooked investors and sent FTT down.

Essentially, Bankman-Fried got a capital call for $580 million and didn’t have the liquidity to cover it.

What happens now?

There is still a lot to figure out, but we can expect digital assets to remain volatile until more details about the FTX-Binance deal are revealed. Some analysts say the tie-up could accelerate Washington’s push toward crypto regulation.

Crypto may have just avoided its Lehman moment, but we’re now in uncharted territory, and it’s not clear who, if anyone, would be willing to be the next bailout if Binance finds itself in trouble.

Oh, I won’t quit my day job after all. That privilege goes to a lucky ticket holder in California, the sole winner of the record $2.04 billion Powerball jackpot.

The ticket was sold at a Joe’s Service Center in California, the state lottery said on Twitter. The winner has yet to emerge, a representative told CNN, adding: “Someone is holding on to a very important piece of paper this morning.”

Much of the world is, rightly, preoccupied with the midterms. But Wall Street is already looking ahead to Thursday, when the all-important Consumer Price Index report will give us an updated read on inflation.

“Obviously this midterm election — because democracy is on the ballot — is a big deal in the eyes of the populace,” Peter Tuchman, a veteran New York Stock Exchange floor trader, told my colleague Matt Egan. “But how much it weighs on the economy is a good question.”

In short, only a major upset can affect the market reaction at this stage. Stocks have risen in recent days, in part because investors are betting that Republicans will take control of at least one chamber, leading to divided government.

Division means gridlock. And Wall Street love grill.

In this case, gridlock would mean that Republicans could not pass unfunded tax cuts, and Democrats could not push through unfunded spending programs—both of which would exacerbate inflation that is already at decade-high levels, and raise interest rates, explains Matt.

“Less government, a total problem, is likely to benefit the stock market,” Tuchman said.

Several traders told Matt that the midterm elections could easily be overshadowed by Thursday’s CPI, arguably the most important economic measure of the month.

“Markets can adjust to almost anything except unknowns,” Tuchman said. “The biggest long-term unknown in the market is the inflation story.”

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