Cryptocurrencies were jittery and groping for a floor on Wednesday, after a sharp and broad drawdown when nerves about the stability of exchange FTX turned to a rush of withdrawals and ultimately a bailout deal from bigger rival Binance.
Bitcoin , the biggest cryptocurrency by market value, was down 1% at $18,400, after a 10% plunge on Tuesday that marked its worst day since mid-August. Ether , the next largest, has lost nearly 18% since early Tuesday. The market focus was, however, on FTT , the token tied to FTX, whose financials have been the source of investor angst since last week. FTT collapsed by 72% on Tuesday and was down a further 22% at a two-year low of $4.25 on Wednesday.
Pressure on FTX came in part from Binance CEO Changpeng Zhao, who had said on Sunday that Binance would liquidate its holdings of the rival's token due to unspecified "recent revelations."
Market participants were then stunned when Binance signed a nonbinding agreement on Tuesday to buy FTX's non-U.S. unit to help cover what it called a liquidity crunch.
The deal between high-profile rivals Zhao and Sam Bankman-Fried, FTX's CEO, followed week-long speculation about FTX's financial health that snowballed into $6 billion of withdrawals in the 72 hours before Tuesday's deal.
Kami Zeng, head of research at Fore Elite Capital Management, a Hong Kong-based crypto fund manager, termed this another "alarm warning" for the battered cryptocurrency market and said investors should be cautious for a while.
the whole thing still looks like a dark hole. We are not sure how contagious this could be, but I believe institutions need to show their proof of reserves asap. Confidence does not recover before that," Zeng said.
Binance coin , the token used on Binance, was not spared either. With a market value of $52 billion, it was at $317.11, down 6% since Tuesday. A warning of wider and longer contagion came from Zann Kwan, board advisor at Raffles Family Office and part of the board of Singapore association ACCESS, which includes participants involved in cryptocurrency and blockchain, together called decentralised finance (defi).
"Alameda is a big market maker in the defi market. More things will unfold," she said, referring to Alameda Research, a trading firm founded by Bankman-Fried that has close ties with FTX.
Analysts drew parallels with the collapse of Terraform Labs earlier this year after its stablecoin, TerraUSD, dived, setting off a series of other bankruptcies at Singapore fund Three Arrows Capital and U.S. fintech firms Voyager Digital and Celsius.
Bankman-Fried said his teams were working on clearing the withdrawal backlog, though uncertainty in the market about the bailout's status and the depth of problems kept traders nervous.
Bobby Ong, co-founder of crypto analytics website CoinGecko, said the deal could cement Binance's dominance of market turnover - but changes to the broader landscape were unclear.
"It's probably safe to expect this move will further consolidate their lead, as FTX was a top-10 player with a sizeable share of volumes," he said.
"However, how existing users of FTX will respond to this development remains to be seen. Will they continue to trade with FTX, or migrate to other exchanges - either centralised or decentralised?"
Singapore state investor Temasek Holdings, an FTX shareholder, said in emailed comments to Reuters: "We are aware of the developments between FTX and Binance, and are engaging FTX in our capacity as shareholder."
