Crypto Billionaires’ Brawl Triggers Contagion Fears in Markets

Bitcoin and other cryptocurrencies suddenly tumbled on Tuesday in Asia, driven by questions surrounding the balance sheet of Alameda Research, billionaire Sam Bankman Fried’s crypto trading house. Investors kept pulling assets from FTX, the exchange Bankman-Fried also runs, and sent its native token FTT diving as much as 32%. 

The turbulence, triggered by rival Zhao “CZ” Changpeng’s decision to sell a roughly $530 million holding of FTT coins, brought back memories of the contagion that ripped through crypto markets after the TerraUSD stablecoin collapsed in early May. That upheaval then gave way to months of unusual stability in cryptocurrencies — a lull that appeared to have ended this week. 

Bankman-Fried, whose investments in troubled crypto firms in June led some to compare him to the legendary banker John Pierpont Morgan, has found himself trying to assuage investors, customers and counterparties. On Monday, he tweeted that “unfounded rumors” had been circulating and that FTX keeps audited financials. 

Read more: Sam Bankman-Fried Expands Crypto Empire During $2 Trillion Rout 

“There are market players who smell blood and are adding to the downward price pressure,” said Cici Lu, chief executive of blockchain consulting firm Venn Link Partners. 

FTX appeared to have stopped processing withdrawals, the news and information service The Block reported on Tuesday, citing on-chain data, only to say moments later that they appeared to resume. FTX hadn’t responded earlier Tuesday to requests from Bloomberg for comment. Bankman-Fried had acknowledged slower-than-normal transactions over the weekend.

For Bankman-Fried, the stakes are suddenly very real. FTX saw a net outflow of $653 million over a 24-hour period, research firm Nansen said on Tuesday morning. PeckShield, a blockchain security firm, said an unidentified “whale” had pulled $284 million worth of Ether and stablecoins from FTX. The FTT token suffered its biggest intraday drop since May 2021. 

So far, the market reaction has been far from as severe as during the depths of the summer swoon, when Bitcoin touched a low of $17,560 in June. The largest token is still trading above that level. It was down 6.4% at around $19,371 as of 9:44 a.m. in New York. 

“Exchanges are perhaps the most consistently profitable entities in the crypto space,” said Riyad Carey, a research analyst at crypto data firm Kaiko. “So it’s my hunch that FTX is fine.”

Zhao, who runs Binance Holdings Ltd., and Bankman-Fried are the richest founders in crypto. They’re worth $18.3 billion and $15.6 billion respectively, according to the Bloomberg Billionaires Index. They’ve been trading barbs over Twitter in past months, on issues from lobbying to allegations of frontrunning of trades. 

In a late October tweet tagging Zhao which he’s since deleted, Bankman-Fried appeared to take aim at his competitor. “excited to see him repping the industry in DC going forward! uh, he is still allowed to go to DC, right?,” Bankman-Fried tweeted. 

‘Recent Revelations’

One week later, Zhao took to Twitter to announce that Binance was selling its entire holding of FTT tokens, which the company received when it sold a stake in FTX last year. Zhao made a reference to “recent revelations,” without specifying what he meant by that. 

In a Nov. 2 article, news site CoinDesk said much of the balance sheet of Bankman-Fried’s trading house Alameda Research is comprised of the FTT token.

What Links Alameda, FTX and Sam Bankman-Fried? (Podcast)

Some market observers questioned why Zhao chose to announce the divestment on a Sunday, when lower volumes can make tokens more vulnerable to price swings, and why he phrased the tweet the way he did. The Binance founder did say the company would spread out the FTT selldown over a couple of months to limit the market impact. 

In a tweet thread on Monday, Zhao said he wanted to adhere to Binance’s principles by being “transparent.” He acknowledged that he didn’t anticipate the reaction. 

Alameda Research ranks as Binance’s biggest counterparty by on-chain transaction volume, according to data on the platform of Arkham, a crypto intelligence firm. It is followed by trading firms Wintermute and Jump Trading. Alameda’s top counterparties by on-chain transaction volume are FTX, Binance and Circle, according to the platform.

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