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The world’s largest crypto exchange, Binance, is set to acquire its archrival, FTX, for an undisclosed sum after a surge in withdrawals left the company on the brink of collapse yesterday.
Led by Sam Bankman-Fried, one of the crypto industry’s most well-regarded figures, FTX was until recently thought to be in fine shape. In January, the company raised $400 million from Softbank and others to reach a $32 billion valuation, and only last month it was talking about ambitious acquisition plans of its own.
But yesterday, FTX suddenly suspended customer withdrawals (a precursor to many a crypto collapse), and the CEO of Binance, Changpeng Zhao, who goes by CZ, announced on Twitter that FTX had “asked for our help” and a rescue deal had been reached.
In his own thread, Bankman-Fried said that customers’ money is now safe and withdrawals will be processed in time. “A *huge* thank you to CZ, Binance, and all of our supporters,” he wrote. “CZ has done, and will continue to do, an incredible job of building out the global crypto ecosystem, and creating a freer economic world”
After a year in which trust in crypto companies has already been torn to shreds by the collapse of hedge fund Three Arrows Capital, lender Celsius, and the Terra-Luna stablecoin, another high-profile failure was the last thing the industry needed. And FTX came close.
The acquisition may yet collapse; it’s still subject to due diligence and regulatory approval, and there are already whispers that BINANCE may be thinking twice after reviewing the books.
The starting point of this collapse happened in July last year, when Binance, an early investor in FTX, sold its stake in the rival exchange for $2.1 billion worth of FTT, a token launched by FTX. At the time, the move was seen as a logical parting of ways; a rift had formed between Bankman-Fried and CZ, who had differing views on the approach to regulating crypto.
The problems for FTX only bubbled to the surface last week with a report from CoinDesk, which appeared to show that the balance sheet of Alameda Research, FTX’s sister company, was choked up with billions of dollars in FTT.
The discovery raised questions about FTX and Alameda’s financial exposure to FTT, which cannot be readily turned back into cash. (The specifics of the relationship between Alameda and FTX have long been unclear.)
In response, CZ dropped a bombshell on Twitter: Binance would sell off its entire FTT holding. He claimed the intention was to sell “in a way that minimizes market impact,” but the announcement led to a steep drop in the price of FTT (the token has lost almost 90 percent of its value) and a surge in withdrawals at FTX, as customers began to panic about the safety of their crypto.
Bankman-Fried initially denied rumors of insolvency on November 7, claiming that “a competitor is trying to go after us with false rumors” and that “FTX is fine.” (These tweets have since been deleted.) It later became clear the company was scrambling to secure a bailout.
