Binance To Acquire Rival FTX — What’s This Mean for Crypto?
In what is being deemed one of the biggest — and most shocking — crypto deals of the year, and after a few tumultuous days, rival platform Binance announced it would acquire newly embattled crypto platform FTX on Nov. 8.
“This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days,” Changpeng Zhao, aka CZ, Binance CEO tweeted.
This is a stunning and very quick turn of events for Sam Bankman-Fried, FTX CEO, who had emerged as the savior of all things battered since the crypto winter started.
Bankman-Fried tweeted: “Hey all: I have a few announcements to make. Things have come full circle, and FTX.com ‘s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.).”
“It’s incredible how extensive the financial problems were at FTX,” said Calanthia Mei, co-founder of Masa Finance. “For so long, the world came to know FTX as an example of responsible management, especially during a time of extreme market volatility. But it’s now clear that FTX was not immune to this volatility. Leverage in any market should be done very carefully and transparently, especially in the digital asset world.”
Mei added that there will be damage inflicted from this incident, and it will take time for the industry to recover.
“One thing to emphasize here is that this should all be seen as a rallying call of sorts for our industry – including centralized exchanges – to embrace the ethos of crypto – that is, to embrace transparency and auditability. We need this now more than ever,” Mei said.
The announcement comes just a day after Bankman-Fried said on Twitter that a competitor was trying to go after them with false rumors and that “FTX is fine. Assets are fine.”
The quick turn of events comes on the heels of a CoinDesk report that raised concerns about the balance sheet of Bankman-Fried’s other company, Alameda Research, which was said to be too heavily reliant on illiquid tokens including FTX’s native crypto token, FTT.
Then, on Sunday, Nov. 6, CZ announced on Twitter that “Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books.”
This brought the price of FTT crashing by more than 70% to around $6, according to Bloomberg.
And on the morning of Nov. 8, FTX halted withdrawals. On the afternoon of Nov. 8, FTT was down about 80%, according to CoinMarketCap data.
“It’s pretty astonishing how Binance has come out on top here and in turn has become the predominant player in the industry,” said Daryl Kelly, founder of LTD.INC. “For a good while, the narrative has been that of one pitting FTX off against Binance as the two most powerful forces. But it’s pretty clear that FTX’s financial problems run far deeper than what most observers expected.”
Kelly added that FTX’s use of leverage with its FTT token turned out to have produced “serious vulnerabilities.”
“And it’s pretty clear that CZ at Binance understood exactly what was happening in terms of these vulnerabilities, and so he acted swiftly and strategically. And he won,” Kelly said. “The market has gone down rather significantly because of this turmoil, but it does seem as though this acquisition might actually have staunched what otherwise would have been even more bleeding if FTX went totally insolvent. It’s still too early to tell what the long-term implications here will be, but it’s safe to say that Binance is now the foremost player in this industry.”
CZ added on Twitter that this was a highly dynamic situation.
“Binance has the discretion to pull out from the deal at any time. We expect FTT to be highly volatile in the coming days as things develop,” he tweeted.
Bob Ras, co-founder of Sologenic, said that Binance’s bail-out seems to be an attempt to save the crypto market as a whole.
“It’s not in any participant’s interest, including Binance, to experience Luna Part Two. However, the outcome is unclear; if Binance backs out of the deal, we might see lower lows in this bear market,” Ras added.
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