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Monday, March 20, 2023

Binance-FTX Buyout Sends Shockwaves Through Crypto Markets

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CNN Business

In an unexpected twist, cryptocurrency exchange Binance said it is buying smaller rival FTX after the company faced a liquidity crisis that rattled digital assets and sparked fears of contagion.

“This afternoon, FTX requested our help,” Zhao “CZ” Changpeng tweeted on Tuesday. “There is a significant liquidity crisis. To protect users, we sign a non-binding agreement [letter of intent] with the intention of fully acquiring http://FTX.com and helping to cover the liquidity crisis”.

The announcement surprised crypto investors, as a merger between the two largest crypto exchanges by volume would mark a tectonic power shift in the industry.

The news sparked a brief rally in digital assets, but it was not enough to calm anxious investors.

Bitcoin fell more than 10% on Tuesday to hit a 52-week low of around $17,600, according to CoinDesk. FTX’s internal currency, FTT, crashed and lost 85% of its value. Other digital assets and stocks linked to the industry, such as Coinbase, also fell.

FTX founder and CEO Sam Bankman-Fried is one of the most influential figures in the cryptocurrency space and became something of a one-man banker over the summer, shelling out around $1 billion to support companies in crisis as cryptocurrency prices plunged.

On Tuesday, however, the tables turned when the Bankman-Fried firm faced a run on FTT.

“I’m really surprised by this,” an industry executive told CNN Business. “The FTX failure… would be like a Lehman Brothers event for space. But if they’ve been successfully rescued, then that would probably prevent things in the pass.”

Binance and FTX did not immediately provide details on the deal, noting that the two parties were working out the deal in real time.

“There is a lot to cover and it will take some time,” Zhao tweeted. “This is a very dynamic situation, and… Binance has the discretion to withdraw from the deal at any time.”

Fears about FTX and Alameda Research, the trading house of Bankman-Fried, began last week after a report published by crypto news site CoinDesk suggested that much of Alameda’s balance sheet was made up of FTT, which is a relatively small token. little liquid.

On Sunday, Zhao, the head of Binance, said that his company would sell all of its holdings, around $580 million, in FTT, “due to recent revelations.” His announcement spooked investors and caused the FTT to crash.

In essence, Bankman-Fried was receiving a $580 million capital request and did not have the liquidity to meet it.

It’s an “unbelievable situation, and basically a complete turnaround from anything anyone would have expected even a week ago,” the industry executive told CNN Business.

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