FTX's New Accusations Against CZ and Binance

CZ has barely gotten out of prison, but some headlines suggest he might be heading back. While the crypto market is in full euphoria, FTX seems determined to stir things up again. Recently I was chatting with friends about this gossip, and I thought it would be useful to share my take here, because the story is genuinely crazy.

FTX is suing CZ and Binance again. Their core claim is that FTX collapsed because of CZ and Binance. They accuse CZ of maliciously selling the FTX token (FTT) and causing a market collapse. According to FTX, CZ violated federal and California laws on unfair competition, and they are now demanding $1.8 billion in damages.

The FTT Sale: Catalyst or Convenient Excuse?

For those new to crypto, the love-hate relationship between CZ and FTX goes back years. But the specific event at the center of this lawsuit is CZ's sale of Binance's FTT holdings. That sale led to a liquidity crunch for FTX, and the price of FTT dropped from $23 to nearly $3. All of this directly accelerated FTX's collapse.

However, I think FTX is being a bit ridiculous. The sale was only a catalyst. The root cause was FTX misappropriating client funds without consent to support high-risk investments by Alameda Research. Blaming others for their bankruptcy is completely irresponsible. If FTX's fundamentals and the FTT token had been strong, Binance would never have sold those tokens.

From Rivals to a Failed Rescue: The Backstory

Back in the day, Binance and FTX were among the oldest and largest exchanges in the market. They were number one and number two, and competition was fierce. After the FTX disaster, SBF was begging everyone for help: sovereign funds, private equity, and other exchanges. He was rejected everywhere, which is why he eventually turned to CZ, his biggest rival.

SBF later said that CZ was furious and made him beg. Fortunately for SBF, CZ initially showed willingness to save FTX, and SBF quickly sent out multiple tweets praising CZ and Binance, thanking them. But CZ was not swayed by flattery. After analyzing FTX's situation, Binance concluded that FTX was beyond their capacity to control or assist. CZ then tweeted that he was abandoning the intent to acquire FTX. That became the final nail in the coffin.

Could that sequence, first offering hope and then plunging SBF into despair, have fueled the frustration of SBF and FTX? I think that's quite possible. Otherwise, FTX would not still be pestering CZ today. At the time, a short cartoon even summarized Binance's rescue of FTX as a failed rescue.

Will CZ Go to Jail? Why This Lawsuit Probably Goes Nowhere

Will CZ actually go to jail over these accusations? Will this lawsuit impact the current crypto market? That seems unlikely. First, CZ is not the fundamental reason for FTX's bankruptcy. Second, FTX already sued CZ and Binance in October 2023, and nothing came of it. At this point, it feels like harassment.

FTX does not need this drama. They are about to compensate their investors, with the liquidation process coming to an end. FTX is preparing to use up to $15.5 billion in assets recovered since filing for bankruptcy to reimburse creditors.

FTX Reimbursements: Limited Market Impact, Maybe Even Positive

In my personal opinion, the impact of those reimbursements on the market will remain limited. Many users thought FTX still held cryptocurrencies in their accounts. The reality is that when the liquidation team took over, they discovered a massive hole: only 0.1% of the BTC and just 1.2% of the ETH were left.

Creditors will be reimbursed in fiat, based on token prices at the time of bankruptcy. For example, if you had invested 1 BTC in FTX, you will not get 1 BTC at today's price of around $90,000. You will receive about $13,000 in fiat. Since the tokens cannot be returned, there will be minimal impact on existing crypto flows.

If creditors had received BTC at $90,000, many would likely have liquidated their positions immediately. But in this case, the effect might be the opposite: an injection of liquidity into the market, which could drive prices higher. Some people might lose confidence in crypto and decide not to return, but others could take the opposite route thanks to recent good news and invest their liquidity back into crypto.

A Reminder That Transparency and Rules Still Matter

All in all, I do not think the fact that FTX is suing Binance and CZ will impact the market, and I do not think it will impact CZ at all. The impact of FTX's creditor reimbursements will likely be limited, or possibly even positive. So for now, it is just gossip, and the story never seems to end.

The FTX catastrophe is still a clear reminder of the importance of regulation and clear means to monitor everything. Whether through government laws, which in this case allowed creditors to recover their funds, or through tools that let us keep an eye on everything, we need more transparency. We need more regulation or more decentralization, or both. Fortunately, the market now seems to be heading in the right direction.

During my upcoming trip to the US for the North American Blockchain Summit, I will do my best to gather the latest information on what might change in terms of regulation, especially with many American politicians around. I will share what I learn.