Binance CEO Changpeng “CZ” Zhao stunned the crypto world on Tuesday with an announcement that his firm was moving to take over rival FTX.com, which he said was seeing a liquidity crunch. Market-watchers linked the jitters to a Zhao tweet that the letter of intent between the two parties was nonbinding.

Bitcoin, the largest token by market value, fell as much as 17% on Tuesday to $17,172, its lowest since November 2020. The plunge took it below some key trading thresholds that investors had previously been viewing as support. Just about every digital coin was hit: Ether, Polkadot and Avalanche each slumped more than 14%, while both Solana and Dogecoin dropped more than 28% at one point. 

FTT, the utility token of crypto exchange giant FTX, collapsed by more than 75% to around $4.70 as of lat afternoon in New York, according to CoinMarketCap.com. 

“It’s definitely having to do with a renewal of this crisis that’s being created by FTX,  a renewed solvency crisis,” said Strahinja Savic, head of data and analytics at FRNT Financial. “And we still don’t know if this thing with FTX is over and how it will end.” 

The letter of acquisition intent by Zhao’s Binance Holdings came after a bitter feud between the two men spilled into the open, with Zhao actively undermining confidence in FTX’s finances and helping spark an exodus of users from the 3-year-old FTX.com exchange. A day before reaching a deal, Bankman-Fried said on Twitter that assets on FTX were “fine”. 

Terms of the emergency buyout were scant, with Binance saying the agreement came after “a significant liquidity crunch” befell FTX and the firm asked for its help. 

The price of Sol, the native token of Solana blockchain, which is associated with both FTX and crypto trading house Alameda Research, and other tokens of projects on Solana posted dramatic drops.

“SBF and FTX were the biggest patrons of solana. This era is over. Binance has taken over, and they will heavily favour the BNB chain over Solana. Alameda had about $1-billion in locked and unlocked $SOL which they’ll have to sell if insolvent. This puts a huge sell pressure on $SOL.” said Teng Yan, a researcher at digital-asset research firm Delphi Digital, on Twitter.

The FTX-Binance ordeal gave some traders flashbacks to the issues suffered by Celsius, the crypto lender that collapsed earlier this year, as well as those seen by other firms that were engulfed in the market crash. 

“The letter of intent is non-binding, which means that further issues could still arise if CZ/Binance decide to back out of the deal,” said David Moreno Darocas, research associate at CryptoCompare.

Teong Hng, CEO at crypto investment firm Satori Research, also pointed to the letter of intent being non binding as the reason prices crashed. The “situation is still very fluid,” Hng said. “But I am confident these two crypto giants will do the right thing to protect investors and the industry.” BM/DM