CZ Departure, Binance Deal Lead to Purge of $175M of Crypto Longs

  • CZ’s Binance exit and FTX deal spur $175M+ futures liquidation.
  • FTX’s Binance token buyout triggers major crypto market selloff.
  • The crypto market faces a $200B loss, highlighting dependency on key figures.

Changpeng “CZ” Zhao’s departure from Binance and the exchange’s deal with FTX have triggered a massive liquidation of long positions in cryptocurrency futures markets this week. According to data from Coinglass, over $175 million worth of long positions were wiped out across major exchanges after the news broke. 

The sell-off started Monday after Binance, the world’s largest cryptocurrency exchange founded by CZ, announced that he was departing as chief executive. While CZ said he would continue to serve as a strategic advisor, the surprise news raised questions about Binance’s future direction and leadership. This sparked an initial decline across major cryptocurrencies such as Bitcoin and Ethereum.

However, the major capitulation occurred on Tuesday after Binance announced it had signed a nonbinding agreement to sell its FTX token (FTT) holdings to its rival exchange, FTX. As part of the deal, FTX would also help clear out a backlog of Binance customer withdrawals that built up during the recent cryptocurrency market turbulence. 

Impact of Binance-FTX Deal Over $175 Million in Futures

The deal signaled desperation on Binance as it struggles with liquidity issues during the ongoing crypto winter. The news instantly crashed the price of FTT by over 75%, seemingly overnight, evaporating over $6 billion in market value. The contagion quickly spread to other altcoins as well.

According to data analytics firm Coinglass, over $175 million worth of long positions were liquidated across major exchanges in the 24 hours following the deal announcement. This includes $110 million on Binance, $28 million on FTX, and $14 million on crypto derivatives exchange BitMEX. 

The largest single liquidation order occurred on Binance’s Bitcoin futures market, with $5.5 million worth of longs wiped out in one shot. $3 million long positions in Ethereum futures on Binance were also eliminated. 

CZ later stated that the deal was made to “build trust” and increase transparency, while FTX CEO Sam Bankman-Fried said it would bring more stability to the industry. However, traders showed no confidence in their assurances as prices plunged. The total cryptocurrency market cap has declined by over 20% this week, shedding $200 billion in valuation.  

While volatile price swings are nothing new for the nascent crypto asset class, the magnitude and drivers behind this week’s selloff show the market’s dependence on key personalities and the fragility of certain major players. It also demonstrates the cascading risk that comes with the interconnectedness of centralized crypto exchanges. Enhanced transparency, risk management, and decentralized alternatives may be needed for the market to mature.

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