Cryptocurrency prices plunged for the second day in a row on Wednesday after cryptocurrency exchange Binance announced it was pulling out of its deal to buy bankrupt rival FTX Trading.
Bitcoin and other cryptocurrencies fell widely shortly after investors heard rumors that the Binance-FTX deal was in trouble. The CEOs of both exchanges, Sam Bankman-Fried of FTX and Changpeng Zhao of Binance, had publicly agreed to a merger on Tuesdaypending Binance’s ability to perform due diligence on the FTX balance.
That due diligence raised significant concerns that convinced Binance to pull out of the deal, the company said in a statement on Wednesday.
“Initially our hope was to be able to help FTX customers provide liquidity, but the issues are beyond our control or ability to help,” said Binance, the world’s largest cryptocurrency exchange.
The price of Bitcoin plunged more than 12% to $16,084, according to CoinDesk, its lowest level since December 2020. It had been above $20,000 earlier in the week. The other major cryptocurrency, Ethereum, was down 13%.
FTX agreed to sell to Binance after experiencing the cryptocurrency equivalent of a bank run. Clients left the exchange after worrying about whether FTX had enough capital. The flash sale was a surprising turnaround for Bankman-Fried, who was hailed as a savior earlier this year when he helped prop up a string of cryptocurrency companies that ran into financial trouble.
Zhao, known as “CZ” in the crypto world, posted a lengthy statement on Twitter regarding rumors of the Binance-FTX deal unraveling.
“First, we didn’t plan this or anything related to it. It’s been less than 24 hours since SBF called me,” Zhao said, referring to Bankman-Fried. “And before that, I had very little knowledge of the internal state of things at FTX. I could do some mental math with our income to guess theirs, but it would never be very accurate.”
Shares of publicly traded exchanges exposed to cryptocurrencies also fell on the news. Robinhood shares closed down about 14% and Coinbase shares lost about 10%.
FTX is the latest cryptocurrency company this year to come under financial pressure as crypto assets have lost value. Other failures include Celsius, a bank-like company that received crypto deposits in exchange for performance, as well as an Asia-based hedge fund known as Three Arrows Capital.