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Crypto, Equities Slide as Investors Digest FTX Fall, Midterm Results

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Crypto and stocks extended their declines Wednesday as investors kept their eyes peeled for pending midterm election results and updates regarding Binance’s apparently canceled plans to purchase FTX.

A day after its short-lived comeback above $20,000 Tuesday, bitcoin plunged below $16,000, trading 14% lower as of 4:45 pm ET. Ether followed and dipped to its lowest price in since July, barely hanging on to the $1,100 level Wednesday afternoon. Nearly two months after the Merge, ether turned deflationary Wednesday as the supply decreased thanks to heightened transaction demand and surging gas fees.

The decline does not come as a surprise to analysts, who said volatility is to be expected given the uncertainty around FTX’s solvency and legal standing, plus concerns that Binance’s rescue, which was initially well-received, may not be coming.

Future of FTX in doubt

As some predicted, Binance backed away from its earlier pledge, tweeting Wednesday afternoon that it would not pursue the acquisition of FTX.

As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.

— Binance (@binance) November 9, 2022

Stefan Rust, CEO of immersive web tech agency Laguna Labs, said Tuesday he thought it was “highly unlikely” Binance’s acquisition of FTX would ever come to fruition, adding that Binance CEO Changpeng Zhao was simply “trying to stem the blood flow.”

Sam Dibble, a partner at law firm Baker Botts, also had questions about whether the deal would close. He told Blockworks Wednesday — just before Binance said it would no longer pursue the acquisition — that he looked at the company’s move as “an attempt at market confidence building.”

Dibble had said the intended transaction could turn into more of a financing deal.

“Binance could say, ‘Well we were thinking of acquiring the company, but it turns out really what we want are the assets and not the liabilities,’” he said. “These types of changes in structure of a deal happen all the time in [mergers and acquisitions] when you have a non-binding term sheet like this.”

“I imagine transparency surrounding the size of the hole in FTX’s balance sheet, and presumably the liquidations and bankruptcies that may follow, will be maximum blood within crypto,” Matt Fiebach, research analyst at Blockworks, said.

Stocks join crypto down sharply ahead of Thursday’s CPI print

Outside of the crypto carnage, equities tumbled, too. The S&P 500 and Nasdaq Composite indexes closing 2.1% and 2.5% lower, respectively. Uncertainty about the future of Federal Funds Rates, which Federal Reserve Chairman Jerome Powell hinted could hit 5%, coupled with election results still trickling in after the close, has traders alarmed. Meanwhile, the dollar index (DXY) was up 0.75%, reversing Tuesday’s slide.

“The current situation reflects relative improvement in the outlook as spiking global yields are no longer pressuring stocks,” Tom Essaye, founder of Sevens Report Research said. “But that’s about the only positive we saw over the past month.”

   
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