What is Alameda Research and Why is It Crashing Crypto Market Today

YEREVAN (CoinChapter.com) — The entire cryptocurrency market is in a sea of red. Bitcoin (BTC), the leading cryptocurrency, is back under $18,000 as liquidity concerns around Sam Bankman-Fried’s crypto exchange FTX continue to make news. Caught in the entire fiasco is also his trading firm Alameda Research, whose balance sheet carries FTX tokens (FTT) worth billions. 

As CoinChapter earlier reported, FTX was forced to halt withdrawals after major investors, including Binance CEO Changpeng Zhao, announced intentions to liquidate their holdings. The development sent FTT tanking, costing the larger crypto industry over $100 billion. 

Bankman-Fried’s troubles have led Zhao to announce that Binance will be taking over its rival company after it escalated FTX’s downfall. 

Meanwhile, the FTX token (FTT) has tanked by nearly 80% in the past 24 hours. At the time of writing, it trades at $3.97 per token, falling from $26.40 on November 1. 

What is Alameda Research and why is it involved in this mess? 

Sam Bankman-Fried’s vast crypto fortune is divided into two parts, the Alameda trading company, and the FTX crypto exchange. According to Wall Street Journal, before the latest fiasco, his assets amounted to around $15.6 billion. 

However, as much as the crypto mogul would like to flaunt the two as separate entities (which they are, at least on paper), their close financial interdependence is what has become a headache for Bankman-Fried. 

As one report by CoinDesk recently revealed, Alameda Research has most of its assets held in illiquid altcoins. A majority of these assets, $5.8 billion (of the $14.6 billion the company reported) were in FTX’s exchange token, FTT. 

Ok, so what? Well, normally, there is no problem when a company invests heavily in one single token. However, the revelation that its existence relies on a single crypto token created by a sister company is damning. 

To make matters worse, a majority of its assets were in illiquid Solana-based altcoins. 

To put things in simple terms, the value of Alameda Research is artificially inflated, as the company does not hold real assets to back its value. It has allegedly used the locked assets as collateral to take out loans in USD and other cryptocurrencies. This then puts under question the firm’s ability to repay its outstanding debts if required. If it cannot, the FTX risk facing liquidation. 

Recommended: 3AC Cofounder Zhu Su Reemerges Amid Alameda-FTX Collapse

Binance messes things up for Sam Bankman-Fried & FTX

The world’s largest cryptocurrency exchange Binance invested in FTX back in 2019 when the company was then a derivatives exchange. Last year, FTX bought back all the equities held by Binance in a $2.1 billion deal. According to the Binance CEO, the deal was partly in BUSD and FTT tokens. 

As per reports, Binance’s FTT holdings as a result of the deal amounted to $580 million, which Zhao planned to offload into the market. 

Last week, a report broke that Sam Bankman-Fried had allegedly lobbied regulators against Binance. Accusations even suggested FTX-funded anti-Binance articles and reports in the mainstream press. 

This, of course, was in bad taste and CZ, the CEO of Binance, wasn’t going to take it lightly. The timely report about the worrying balance sheet of FTX gave him the perfect opportunity to strike back.

Caroline Ellison, the CEO of Alameda Research tried to save the company by offering to buy all of Binance’s holdings. 

“If you’re looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22!” 

she responded. 

However, her desperation to stop CZ from selling FTT tokens sparked further speculation that the situation was indeed serious. Hence, FTT holders began selling their tokens, pushing the prices down. 

The fiasco had also earlier led to them withdrawing almost entirely the funds held in FTX, as charts revealed massive outflows worth billions. 

The collapse of FTX resulted in Sam Bankman-Fried asking its rival to buy them out. What a victory for Changpeng Zhao.

Wait, wasn’t Alameda Research bailing out companies?

The latest developments have sent shockwaves among the crypto community. Earlier this year, crypto hedge fund Three Arrows Capital become bankrupt with outstanding dues to Voyager and BlockFi. While the markets decedent into panic, Bankman-Fried acted like things were ok at his end. He even offered to bail out struggling companies, claiming to have as much as $2 billion to that end. 

Now, as the balance sheet reveals, that was nothing but a play to prevent its investors and lenders from liquidating their positions in Alameda Research. By showing a strong face, Bankman-Fried was able to pretend that his company does not have financial worries. 

As Crypto Security Researcher Lucas Nuzzi pointed out, it was FTX that bailed Alameda Research out earlier this year. 

“I found evidence that FTX might have provided a massive bailout for Alameda in Q2 which now came back to haunt them,”

he wrote.

The entire charade has come off. Alameda Research has been bankrupt for months. Now that the mask has come off, it may well be the next major company to fold up. 

Binance may likely turn down the offer to acquire them, sending it to a certain closure. After all, what CZ has issued is a non-binding letter of intent (LOI). 

All things said and done, Sam Bankman-Fried, known as the “banker of last resort” stands exposed. What will regulators do now, remains to be seen? 

In essence, the Binance CEO has shown who’s the real boss, so far. Meanwhile, remember, don’t keep your tokens in exchanges.