With the bankruptcy of crypto platform FTX and the bizarre facts coming out about it, the entire crypto market is under pressure. Especially the crypto exchanges are currently in the spotlight. As a result, they are doing everything in their power to restore calm to the crypto market. On the other hand, a number of exchanges are still in the danger zone. We chart the situation.
Binance tries to save crypto market with billions, still critical
Due to its conduct leading up to the bankruptcy of FTX, Binance faced considerable criticism. Investors are also holding the world’s largest crypto exchange responsible for the resulting situation. CZ is trying to save what can be saved and previously announced a plan by which they will provide a one billion dollar recovery fund to save the market. In doing so, the world’s largest crypto exchange stated that it is willing to double that amount if needed in emergency situations. Meanwhile, the fund is up and running.
In addition to Binance, major investors are also participating financially in the fund. The fund is intended to provide financial support to market participants facing acute financial difficulties due to the current crisis through no fault of their own. The fund should be operational for a maximum of six months. That the need is high is shown by the fact that 150 applications for support have already been submitted. In addition to the fund, Binance plans to buy assets itself, if possible, and invest in promising initiatives that are struggling.
Criticism by crypto exchanges of support fund Binance
Experts are generally optimistic but critical. For example, they argue that the uncertainty is so great that the fund alone is not enough to reverse the bear trend. In addition, many are looking at the parties contributing capital to the public wallet address where the money is parked. Based on how many parties other than Binance contribute, they try to estimate the confidence and capital in the crypto market.
In addition, the crypto market distrusts Binance itself. On the one hand, this is because of the situation surrounding FTX. On the other hand, critics have formal concerns. For example, there is no official business address. The exchange is also at odds with various regulatory agencies.
For now, the experts seem to be right, because looking at the live cryptocurrency prices, we see a neutral rather than optimistic market.
Willy Woo has more criticism of Binance
Crypto expert Willy Woo has a different take. He signals that the fund is filled with crypto coins that naturally depend on the market. If the price of those coins (mainly Bitcoin, BNB and BUSD) comes under pressure, the fund quickly becomes worth less money. This is apparent, as significantly less remains of the billion that has since been deposited.
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The Binance $1b SAFU insurance fund today:
BNB: $367m (44%)
BUSD: $300m (32%)
BTC: $270m (24%)
While I commend Binance for having such a fund, there’s no sense putting incidence-correlated BNB in there.
How would we feel about FTX having an insurance fund filled with FTT?
– Willy Woo (@woonomic) November 24, 2022
So while this is positive news, the crypto market also has fears about the situation on other crypto exchanges.
Cryptomarket is now looking at Gemini
One of the major crypto platforms that is on the verge of collapse is Gemini of the Winklevoss brothers. They are having liquidity problems. As a result, they are no longer providing crypto loans and customers cannot always withdraw funds. They are looking for financing of at least $500 million to avert their liquidity problems. This has not been found so far. Since Gemini is one of the liquidity providers for the business crypto fund Grayscale and both companies are under the same parent company, Gemini’s collapse could trigger another oil spill of misery. We foresaw such a scenario before and shared risk management measures you can take about it.
Coinbase also in trouble
After Binance, Coinbase is the second largest crypto exchange in the world. However, problems are also emerging here. For example, the listed company’s share price is falling dramatically and they have now laid off 18% of its staff. CEO Brian Armstrong is trying to save the business and continues to stress that there is little to no exposure from the FTX scandal. Still, analysts remain concerned and fear the stock market could be affected by the overall malaise we are now seeing in the crypto market.
Crypto.com is also in the danger corner of crypto exchanges
The last major player we are discussing now is crypto.com. This platform got itself into trouble by putting its reliability to the test. For example, millions were spent on faulty transactions (fortunately they could be fixed) and shifting reserves in wallets led to criticism from Binance boss CZ, who argued that this could be a sign of trouble. In response, the leadership wanted to restore confidence by conducting an audit on fund coverage.
Even before this audit could be completed, unrest arose about this again. In fact, most of the coverage turned out to be Bitcoin (BTC) at 31.12% and Shiba Inu (SHIB) at 19.84%. Shiba Inu in particular is very volatile so liquidity is also in question here. Also, the fact that more than 50% of the guarantee consists of ownership of only 2 crypto currencies indicates little risk diversification and thus a red flag for investors.
With all these uncertainties about crypto exchanges, CZ’s prediction that we are not yet at the bottom of this crisis seems like a true word.
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Note: We never give financial advice, so you can’t interpret our contributions that way either. Always do your own research and decide rationally if, when, what and how much you want to invest.