Data from CryptoCompare shows the price of Bitcoin plunged over the past week, going from around $20,000 to a low under the $16,000 mark before recovering slightly, to now trade at $16,700.
Ethereum’s Ether, the second-largest cryptocurrency by market cap, traded in a similar way. The cryptocurrency plunged from a $1,600 high to trade below $1,100 before recovering. It’s now at $1,250.
Headlines in the cryptocurrency space this week started off with leading trading platform Binance revealing it was divesting its holdings in FTX’s native token FTT. Binance received the tokens as part of its compensation for exiting an equity investment in the rival exchange, and was set to sell the tokens after a leaked balance sheet of FTX’s sister company, Alameda Research, revealed it relied heavily on FTT and illiquid Solana-based tokens.
Binance’s move, coupled with the leaked balance sheet, triggered a bank run on FTX, which halted withdrawals shortly after.
Shortly after, the exchange filed for Chapter 11 bankruptcy protection in the US, and its CEO Sam Bankman-Fried stepped down and was succeeded by John J Ray III. In the filings, FTX indicated it has more than 100,000 creditors, assets in the range of $10 billion to $50 billion, and liabilities in the same range.
The exchange has since been hacked as its newly appointed CEO John J Ray III said in a statement that “unauthorised access to certain assets has occurred” and that the firm was in contact with law enforcement officials and regulators.
After FTX’s bankruptcy filings, contagion hit the cryptocurrency pace, and confidence in centralised platforms was severely affected. Cryptocurrency lender BlockFi has suspended withdrawals and won’t be “able to operate business as usual” given the bank run on FTX and the lack of clarity as to what is happening with the cryptocurrency exchange.
In a statement, BlockFi said they were “shocked and dismayed by the news regarding FTX and Alameda” and its top priority “will continue to be to protect our clients and their interests”.
Circle co-founder Jeremy Allaire likened FTX’s liquidity crisis to the Lehman Brothers’ collapse in 2008. Several cryptocurrency exchanges, including Coinbase and Kraken, have distanced themselves from FTX, clarifying they had no exposure to the exchange.
Notably, FTX hit a valuation of $32 billion at the start of this year, backed by blue-chip investors, including BlackRock, Canada’s Ontario Teachers’ Pension Plan, and SoftBank.
Crypto exchanges to implement ‘proof of reserves’
After FTX’s liquidity crisis, Binance has committed to introducing “Merkle-tree proof of reserves” in the interest of “full transparency” in the cryptocurrency industry. In a tweet, Binance’s CEO said “banks run on factional reserves. Crypto exchanges should not”.
Other exchanges followed suit, announcing they would offer users proof of reserves. Various community members agreed exchanges should have transparent proof of reserves. A Merkle tree is a data structure blockchains use to store transaction data, which means that proof of reserves using them implies a system that shows the exchange users’ crypto holdings are safe using information from the blockchain.
Jeremy Nau, Director of Digital Assets at Armanino, offered to implement a proof of reserves system on Binance’s behalf. The firm already offers a similar service to Kraken, which was the first crypto exchange to implement proof of reserves. Kraken’s proof of reserves reveal the exchange possesses assets exceeding 100% of its liabilities.
Google Cloud becomes Solana Network validator
While FTX’s collapse has taken over headlines in the space, not everything that happened was related to it. Google’s cloud computing division, Google Cloud, has announced it’s now running a validator node on the Solana blockchain, and is set to add features aimed at welcoming Solana developers and node runners.
The move comes after Google revealed its Blockchain Node Engine service at the end of last month, which is a “fully managed node-hosting service that can minimize the need for node operations”.
On social media, Google Cloud revealed it was now running a block-producing Solana validator to participate in and validate the network, while working to bring Blockchain Node Engine to Solana next year.
Meanwhile, a New Hampshire judge has ruled that cryptocurrency start-up LBRY violated securities laws by selling its native LBC tokens without registering with the US Securities and Exchange Commission (SEC).
The LBRY ruling could affect the SEC’s lawsuit against Ripple Labs and two of its executives, which have been charged with selling $1.3 billion in unregistered securities – XRP. Ripple’s defence has hinged on its claim that XRP is not a security. Major players, including Coinbase and the Blockchain Association, have filed to support Ripple in court.
Francisco Memoria is a content creator at CryptoCompare who’s in love with technology and focuses on helping people see the value digital currencies have. His work has been published in numerous reputable industry publications. Francisco holds various cryptocurrencies.
Featured image via Unsplash.