The price of the Binance Coin (BNB) rose massively this week following the news of an attempted acquisition of the FTX exchange by Binance. FTX exchange suffered a liquidity crunch and became unable to pay its investors their pending withdrawal requests.
The CEO of FTX exchange – Sam Bankman-Fried therefore cried out that the exchange needed an extra $6 billion to cover the high withdrawal request placed on the exchange by investors and that the exchange had only $400 Million as its convertible cash. Hence, he called on its rival exchanges including Binance to assist the exchange in raising the required funds.
Following this appeal, the Binance CEO initially agreed to buy the exchange and to redeem the investors’ funds up to the tune of $6billion. This boosted investors’ confidence in the Binance exchange and triggered massive investment in Binance Coin (BNB).
Nevertheless, the current bullish trend for BNB slowed down after it was reported that Binance had abandoned the decision to buy the FTX exchange, citing that the issues are beyond their control and there was nothing they could do to redeem the situation.
Why did the FTX exchange crash?
The Coindesk report which revealed that FTX related company known as Alameda Research company, held much of its cash reserves in the FTX native token – FTT triggered large skepticism among investors. Many were unable to understand how an exchange would hold its cash reserve in a token it created. This means they are the greatest whales holding this coin and the price was set to crash any time they decided to convert their assets.
This skepticism triggered a massive selloff of the FTT token with Binance taking the lead and selling off its holding valued at $500 Million. As the selling pressure increased the token crashed by more than 80% from its previous high of $26 at the beginning of the month to a new low of $2.30.
Soon, the FTX exchange fell into a liquidity crunch and became unable to handle the large withdrawal request placed on the exchange.
Next, the owner of the exchange, Sam Bankman-Fried, went public to announce that the exchange would need an extra $ 6 billion to handle the total withdrawal request placed on the exchange.
Consequently, the exchange proceeded to halt some of the withdrawal requests placed on the exchange and they proceeded to seek funds to execute them.
What are the effects of the Binance-FTX Takeover on BNB?
The Binance-FTX was a non-binding agreement that was cut short a day after it was reached. Hence, the Binance Coin only benefited momentarily from the news after it was announced but soon dipped again after the CEO of the Binance exchange announced that they are not continuing with the decision.
This resulted in a massive dip for all crypto assets including Bitcoin, BNB, FTT, and every other crypto asset as investors became more fearful of the security of their assets on Centralized exchanges.
Understanding the BNB coin
BNB also referred to as Binance Coin is the native token of the Binance crypto exchange. This coin serves as the utility token for this exchange and is used in paying for all transactions carried out on the exchange. Given the popularity of the Binance exchange, its native token BNB has emerged today as the most valuable exchange native token in the world.
Is BNB a good investment?
BNB is today one of the most traded Cryptocurrencies in the world. Investors seem attracted to this coin based on the fact that it has a maximum supply and a large trading volume.