By Geoffrey Smith
Investing.com -- FTX tokens remained under massive pressure on Wednesday, after a harsh reminder that the proposed rescue of cryptocurrency exchange FTX is far from a done deal.
"This is a highly dynamic situation, and we are assessing the situation in real time," Binance CEO Changpeng Zhao wrote in a tweet shortly after announcing his intention to buy FTX's non-U.S. assets, averting a seemingly imminent collapse of the world's second-largest crypto exchange.
Zhao warned that "Binance has the discretion to pull out from the deal at any time," and added that "We expect FTT to be highly volatile in the coming days as things develop."
FTT, the native token for FTX's network, had almost immediately lost 80% of its value in response to Zhao's warning on Tuesday, which poured cold water on hopes of a swift and painless resolution for FTX's non-U.S. customer base of over 1 million. By 05:20 ET (10:20 GMT), FTT was trading at $4.0871, down 78% from late Tuesday.
Bernstein warned that the due diligence promised by Zhao is multi-faceted and could take considerable time to complete, with the most pressing task being to establish whether customer funds are missing - and if they are, whether their absence stemmed from wrongdoing by executives.
"This is complex and will take time for Binance to diligence," Bernstein wrote.
Analysts at Cowen, meanwhile, warned that U.S. authorities could try to block the deal on national security grounds, even though it doesn't include FTX's U.S. operations. Binance, which has a troubled history with regulators around the world, faced fresh questions earlier this week after data from Chainalysis showed it had processed over $8 billion of transactions with Iran since 2018, allowing the Islamic Republic to skirt U.S. sanctions.
FTT had traded as high as $25 until last week, when a report by Coindesk suggested it had been artificially propped up by Alameda Research, an FTX-affiliated investment house.
Alameda's balance sheet also detailed a large holding of FTT as collateral, raising fears that FTX had issued the tokens in order to borrow from it to fund its growing commitments. While FTX had raised equity earlier this year. it may have depleted its own funds by spending heavily on digital assets distressed by the collapse of the Terra/Luna network, such as Voyager Digital and BlockFi.
The collapse in FTT's value is likely to be toxic for Alameda. where it accounted for over one-third of total assets booked at $14.6 billion at the end of June. Alameda maintains that the balance sheet published by Coindesk was incomplete and didn't reflect its true financial condition.
FTT's demise has also weighed heavily on other crypto assets in the last 24 hours, with Solana falling 42% on concerns that Alameda will have to liquidate its large holding of that coin to plug the hole in its balance sheet created by the FTT losses.
Even more mainstream coins suffered as the collapse of an exchange that had been widely regarded as strong and stable dealt another severe blow to the industry's credibility, prompting investors to seek the safety of traditional fiat currency instead. Bitcoin fell 11% to a two-year low of $17,380, while Ethereum fell 22% to $1,168.