Crypto giant Binance to acquire FTX following ‘liquidity crunch’
Binance announced on Tuesday that it has signed a letter of intent to acquire FTX, delivering a surprising turn of events following a public spat between the world’s two largest cryptocurrency exchanges that contributed to several digital tokens falling in value over the last few days. The amount of the transaction, which is now non-binding and subject to the outcome of the due diligence process, was not disclosed by the companies.
The agreement comes after Binance’s creator, Changpeng Zhao, and FTX’s founder, Sam Bankman-Fried, sparred on social media for a number of months, with the conflict reaching a head earlier this week.
In a series of tweets published on Tuesday, Zhao (who is shown above) said that Binance came to the conclusion after FTX requested assistance from the company. “We signed a non-binding LOI with the intention of completely acquiring FTX and helping to address the liquidity shortage so that we could safeguard our consumers. “In the following days, we will be carrying out an extensive DD,” he said.
Binance, which is the biggest cryptocurrency exchange in the world, was the first investor to fund FTX; but, as the younger company gained prominence, the relationship between Binance and FTX began to deteriorate.
The relationship between the two billionaires hit an all-time low earlier this week after Zhao revealed that Binance was selling its holdings of FTT, the native token of FTX exchange that it had received as part of an exit from the firm last year. The two billionaires have been hurling snarky remarks at each other for several months, but the relationship between the two hit an all-time low earlier this week after Zhao revealed that Binance was selling its holdings of FTT. Zhao said that the company was selling off its FTT assets as a “post-exit risk management,” lending some credibility to a story that has been circulating extensively concerning Alameda Research’s ability to maintain its financial stability.
Alameda, a business that engages in prop trading and market creating, was established by Bankman-Fried. Alameda has some exposure to the FTT tokens. According to Binance’s trading perspective, the price of a FTT token dropped as low as $14.32 after having been as high as $25.47 earlier on Tuesday. Research company Bernstein recommended to its investors on Tuesday morning that the FTX should think about closing down the Alameda exchange because of the dangers involved.
“Binance is the immediate trigger, but FTX should work on resolving its relationship with Alameda. FTX is unable to maintain its current ownership structure in conjunction with Alameda. It is imperative that FTX totally enclose itself and consider terminating its involvement in the Alameda prop trading industry. Bernstein analyst noted in the report that if Alameda’s trading activities have an effect on FTX’s consumer trust (perception of Alameda trading against customers on FTX and Alameda’s condition of finances), then there is greater risk to operating Alameda than there would be otherwise.
Bankman-Fried expressed his gratitude to CZ, Binance, and all of the people that support us by sending us the following tweet on Tuesday: “A *huge* thank you.” This is an improvement that is focused on the end user and will help the whole industry. CZ has done a great job, and they will continue to do an incredible job, of growing up the global crypto ecosystem and establishing a freer economic world.
According to Bankman-Fried, FTX is attempting to eliminate the withdrawal backlog as quickly as possible. “This will clear up any problems with liquidity, and all assets will be covered on a 1:1 basis. This is one of the primary reasons why we have requested that Binance participate in this event. It could take some time for everything to stabilize, etc. — please accept our apologies for the inconvenience,” he stated.
Several different cryptocurrencies immediately responded to the news.
It is claimed that Binance is valued more than $300 billion, making it the most valuable cryptocurrency exchange in the world. During the most recent fundraising round (a Series C) that FTX received in January of this year, the company was valued at $32 billion. The extensive list of investors that support the company includes Sequoia, BlackRock, Tiger Global, Paradigm, Thoma Bravo, SoftBank, Ribbit Capital, Insight Partners, Lightspeed Venture Partners, Altimeter Capital, Coinbase Ventures, Sino Global, BOND, and Iconiq Growth.
Even the cryptocurrency community, which has been used to unexpected turns of events during the course of this year, was taken aback by the news that was made on Tuesday. In the early part of this year, when Bankman-Fried had acquired a number of companies, he was lauded as a “crypto rescuer.” The ventures arm of the cryptocurrency exchange, known as FTX Ventures, is also a prominent investor in a vast number of cryptocurrency firms.
According to a person familiar with the case, Bankman-Fried sought to raise more funds from investors prior to contacting Binance.
