As if 2022 wasn't already an eventful one for the industry, the cryptocurrency market just received another suprising bit of news. It was reported that Binance, which is the world's largest crypto exchange based on daily volume, agreed to purchase FTX, the fourth largest, in a major shocker of an announcement.
The potential deal, which has now been called off, would have altered the cryptocurrency market significantly in ways that we probably can't really comprehend. But as a result of these wild couple of days, two winners stand out: Coinbase (COIN -5.10%) and Binance Coin (BNB 0.18%) The loser is FTX Token (FTT).
Winner: Coinbase
Neil Patel (Coinbase): Coinbase, the biggest crypto brokerage and exchange operator in the U.S., might have been a loser had there been a more formidable opponent and if the merger had gone through. But this isn't the case right now. Binance and FTX primarily operate in overseas markets where Coinbase has less of a presence. A giant in the industry could have damped Coinbase's international growth plans in the future. Nonetheless, Coinbase has a stranglehold on the lucrative U.S. market, which is a good position to be in, regardless of the industry.
The Binance-FTX news shines light on how complex and opaque some of the most important players in the crypto industry really are. FTX's founder, Sam Bankman-Fried, has been called the crypto era's J.P. Morgan for how he's bailed out troubled crypto firms throughout the year. But news of this deal highlights his company's liquidity troubles. A huge run on the platform caused FTX to halt all withdrawals, spurring more worries. In hindsight, I guess FTX shouldn't have paid $135 million for the naming rights to the Miami Heat's arena.
In response to the news, Brian Armstrong, Coinbase's founder and chief executive officer, pointed out how his company stands out from competitors: "Coinbase has always strived to be the most trusted player in the space, and we don't engage in this type of risky activity," he said on Twitter when addressing how FTX might have misused client funds by lending them out. Furthermore, the fact that Coinbase is based in the U.S. demonstrates how it is fully willing to work with the regulatory framework and be as transparent as possible.
For what it's worth, Binance.US and FTX.US, which target American users, are separate entities from Binance and FTX, respectively. And their U.S. exchanges combined process a fraction of Coinbase's $5.6 billion in trailing-24-hour trading volume.
The nascent crypto market constantly needs to provide its users with reassurances, especially given how much we don't understand about the way things operate. Although recent news wasn't about this business, Coinbase sticks out as a safe and secure enterprise in the industry.
Winner: Binance Coin
Michael Byrne (Binance Coin): Crypto users and investors are nervously waiting to see how far the fallout from Binance's potential acquisition of FTX will spread. The market is clearly rattled by FTX's need for what amounts to a bailout, as evidenced by the fact that top cryptocurrencies sold off dramatically after the news broke. This diminished confidence in the market as a whole could mean that there are no immediate winners to emerge from the situation for some time.
That being said, when the dust clears, Binance's BNB looks like a clear candidate for a potential long-term winner. BNB is the native token for Binance. Binance already had a dominant share of the crypto trading market before this deal, with a reported 49.7% share of the spot crypto trading market at the end of the first half of 2022. Meanwhile, FTX had nearly 9% share of this market. A lot remains to be seen here; the opaqueness of this aborted transaction shook the confidence of many FTX users, who may leave the crypto market altogether. But if Binance can smooth things over and onboard unsettled FTX users to its platform, it will further consolidate its dominant market share in the industry.
Further market-share gains should immediately benefit BNB, as Binance allocates 20% of profits from the exchange to burning BNB tokens. These burns can be compared to a share buyback; Binance permanently removes these tokens from circulation, which should increase the value of the remaining tokens held by investors, at least in theory. Binance has conducted quarterly burnings for 21 quarters in a row, and it has spent considerable amounts of money to do so, burning $547 million worth of BNB tokens last quarter. Binance's stated goal is to eventually burn 50% of BNB tokens.
There will likely be many more twists and turns as this story develops, but the native token for one of the strongest players left standing seems like a good place to be.
Loser: FTX Token
RJ Fulton (FTX Token): With the future of FTX hanging in the balance, there is one clear loser in the midst of this: FTT.
This fiasco's origins can be traced to an announcement that Binance was going to dump all of its FTT holdings. Binance actually invested in FTX in early 2019. FTX eventually bought out its stake and compensated Binance to the tune of $2.1 billion that was paid in a mix of FTT and Binance's stablecoin.
By selling its FTT holdings, Binance effectively would have had enough power to cause the price to plummet. Additionally, the selling was viewed by investors as a sign that Binance knew something about FTT that investors didn't.
FTT serves a variety of purposes within the FTX ecosystem such as providing users with rewards, serving as collateral when trading on leverage, commission fee discounts, and staking. However, its value was derived by its usefulness. As more people started using FTX as their preferred trading platform, its value subsequently rose. While that thinking held true for most of FTT's existence, it might be hard to find anyone who wants to hold FTT anymore.
Even though Binance bailed on the acquisition, it will be extremely difficult for FTX to put the proverbial toothpaste back in the tube. The amount of light shed on FTX's problems revolving around liquidity will likely be too much for the exchange to overcome.
It seems that the fate of FTT might be all but sealed and will follow a path identical path to that of popular crypto lenders Voyager and Celsius earlier this year. This past spring both platforms became insolvent, causing a modern day bank run where users withdrew all their reserves. This resulted in the platforms' native tokens plummeting in value in just a matter of days. Like Voyager and Celsius, the fallout from this news has caused FTT to shed more than 90% of its value just this week. For FTX to rebound from this would take nothing short of a miracle.
