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Bitcoin price drops below $16K after FTX-Binance deal falls through

Bitcoin prices dropped below $16,000 Wednesday afternoon after Binance, the largest crypto exchange, backed out of its emergency deal to acquire rival 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 http://FTX.com," Binance said in a statement.

Bitcoin plunged to $15,985, the lowest price point the largest cryptocurrency has seen since November 2020, according to crypto indexing platform CF Benchmark. It's down 12% for the last 24 hours and 20% for the last seven days.

The new development adds to the mounting concerns over FTX, its equity investors and investments as well the implications its troubles could have for other crypto firms across the industry.

"Every time a major player in an industry fails, retail consumers will suffer," Binance said in its statement. "We have seen over the last several years that the crypto ecosystem is becoming more resilient, and we believe in time that outliers that misuse user funds will be weeded out by the free market."

Even before Binance decided to walk, there were signs of trouble.

A report Wednesday from Semafor — which is backed by FTX Founder and CEO Sam Bankman-Fried —said most of FTX's legal and compliance staff quit Tuesday evening, while a Coindesk report Wednesday morning, citing unnamed sources, raised doubts the deal would go through.

The Securities and Exchange Commission (SEC) is also reportedly expanding its investigation into the cryptocurrency platform's U.S. subsidiary, according to the Wall Street Journal.

"Clearly, something was off because there was a large hole in FTX's balance sheet where they were unable to meet customer deposits," Sean Farrell, head of digital asset strategy with Fundstrat, told Yahoo Finance before the news of the broken deal came out. "It's likely that it came from co-mingling customer deposits with trading practices of Alameda," which is both majority owned and founded by Bankman-Fried and FTX's market maker.

Farrell added the gap between liabilities is likely above $2 billion while as much as $6 billion would not surprise him.

FTX has so far have declined to comment on the matter.

 Binance and FTX logos are seen in this illustration taken, November 8, 2022. REUTERS/Dado Ruvic/Illustration
Binance and FTX logos are seen in this illustration taken, November 8, 2022. REUTERS/Dado Ruvic/Illustration

Other cryptocurrencies also plunged on Wednesday as the events unfolded.

The second largest cryptocurrency, ether (ETH-USD) has sold off more than 15% from $1,336 to $1,118 over the past day. FTX's exchange token FTT, fell by as much as 50% on the day from $17 to $2.5.

The cryptocurrency Solana (SOL), which Bankman-Fried heavily supported and is quickly falling in coin rankings by market capitalization, has sold off by more than 46% in the last 24 hours from $28.19 to $12.7.

In the last 24 hours, the total market capitalization for all crypto assets has fallen by more than 10% from $980 billion to $805.97 billion, according to Coinmarketcap and Yahoo Finance charts.

Shares of Coinbase Global (COIN), a competitor of the two firms, fell more than 10% Wednesday from $50.83 to $45.9 and continues to sell off in after hours trading despite Coinbase CEO Brian Armstrong said over Tuesday that Twitter "doesn't have any material exposure to FTX or FTT (and no exposure to Alameda)."

Still, Mizuho Securities senior analyst Dan Dolev wrote in a Tuesday note that "the rapid fall from grace of a crypto exchange demonstrates how fickle the crypto industry could be. This is a red flag for COIN, where the vast majority of revenues are from trading crypto tokens."

NEW YORK, NEW YORK - JUNE 23: Sam Bankman-Fried speaks onstage during the first annual Moonlight Gala benefitting CARE - Children With Special Needs - hosted by Michael Cayre, Roy Nachum and MegaMoon Museum at Casa Cipriani on June 23, 2022 in New York City. (Photo by Craig Barritt/Getty Images for CARE For Special Children )
Sam Bankman-Fried speaks onstage during the first annual Moonlight Gala benefitting CARE - Children With Special Needs - hosted by Michael Cayre, Roy Nachum and MegaMoon Museum at Casa Cipriani on June 23, 2022 in New York City. (Photo by Craig Barritt/Getty Images for CARE For Special Children )

After plunging 19.3% Tuesday, shares of Robinood (HOOD) fell more than 14% Wednesday morning from $9.7 to $8.4. Bankman-Fried owns a 7.6% stake in the stock and crypto trading platform, according to a May SEC filing.

However, Dolev played down the day’s “knee-jerk” reaction, pointing out that unlike Coinbase, Robinhood only earns 12% of its revenue from crypto transactions.

As for other affected firms, Pranav Kanade, portfolio manager with VanEck Digital Assets, told Yahoo Finance the question remains whether FTX's liquidity crunch came as the result of bad debt.

"You can argue a lot of the leverage was taken out of the system in May and June of this year, but a lot of that got resolved by FTX bailing out those companies to some extent," Kanade said. "If there is bad debt, how much and who are those other entities?"

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David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter at @DsHollers

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