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Bankruptcy filings from Celsius and Voyager have raised questions about what happens to investors’ crypto when a platform fails.
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Cryptocurrencies extended their slide for a second day Wednesday as the market absorbed the potential collapse of popular crypto exchange FTX.

Prices were pressured to start the day and plunged by late afternoon as Binance, the largest global exchange by volume, abandoned plans to acquire Sam Bankman-Fried’s FTX after a due diligence exam and recent reports of mishandled customer funds and alleged U.S. agency investigations of FTX.

Bitcoin fell 12% before 4:30 p.m. ET to just under $16,000, hitting a low not seen since November 2020, according to Coin Metrics. It reached its all-time high of $68,982.20 one year ago Thursday. Meanwhile, ether tumbled 14%, to $1,128.87.

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The Bankman-Fried empire quickly unraveled after a report last week showed a large part of the balance sheet at Alameda Research, the trading company where Bankman-Fried was also CEO, had been concentrated in FTX Token (FTT), the native token of the FTX trading platform.

After some light sparring on Twitter with Bankman-Fried, Binance CEO Changpeng Zhao announced his company was offloading the FTT on its books, leading to a run on the popular FTX exchange and a liquidity crisis.

FTX counts some of the biggest names in finance — including SoftBank, BlackRock, Tiger Global, Thoma Bravo, Sequoia and Paradigm — among its investors.

FTT slumped another 63% Wednesday, after plunging more than 75% the day before.

The Solana token also continued to fall. It was last down 45%, after dropping more than 26% Tuesday. Alameda Research, the trading firm owned by Sam Bankman-Fried, who also runs FTX, was an early backer of the Solana project.

“Market factors such as providing SOL token liquidity as well as support for Solana ecosystem projects on FTX exchange has been an important driver for Solana’s success,” Bernstein’s Gautam Chhugani said in a note Wednesday. “This is an adverse event for the Solana ecosystem in the short run. Further, given FTX/Alameda’s balance sheet situation, there may be near term pressure on its Solana holdings, as the situation resolves.”

The bombshell will set the crypto industry back. Analysts foresee further regulatory scrutiny of offshore exchanges, where the majority of crypto derivatives trading takes place. It’s also unclear how much financial contagion will spill into the rest of the market.

Additionally, Bankman-Fried, known as SBF, had recently been praised as a “white knight” in the industry, coming to the rescue of crypto service firms such as BlockFi and Voyager that succumbed to the crypto contagion last spring.

For newcomers to the crypto market, SBF and FTX became the faces of the industry, securing the naming rights to the Miami Heat basketball team’s stadium last year, bringing on Tom Brady and Giselle Bündchen as company ambassadors, and becoming a megadonor to Democratic politics.

“Given the public-facing nature of FTX CEO Sam Bankman-Fried and the size of FTX, we believe that the week’s events could cause some loss of consumer confidence in the crypto industry, beyond that seen in the aftermath of the 3AC, Celsius, and Voyager events that took place earlier this year,” especially if panic spreads and crypto prices keep dropping, KBW analysts said in a note Tuesday. “It may take time for customers to regain trust in the industry, broadly speaking (and we think regulation could help this).”