Binance FTX Buyout Sends Shockwaves Through Crypto Markets


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CNN business

In an unexpected twist, cryptocurrency exchange Binance announced it was buying its smaller rival FTX after the company faced a liquidity crisis that rocked digital assets and sparked contagion fears.

“This afternoon, FTX asked for our help,” Zhao “CZ” Changpeng tweeted Tuesday. “There is a significant liquidity crisis. To protect users, we have signed a non-binding agreement [letter of intent] intends to fully acquire http://FTX.com and help cover the liquidity crisis.”

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

The news sparked a brief rebound in digital assets, but wasn’t enough to reassure worried investors.

Bitcoin plummeted more than 10% on Tuesday, according to CoinDesk, hitting a 52-week low of around $17,600. FTX’s proprietary coin FTT cratered, losing 85% of its value. Other digital assets and stocks tied to the industry, like Coinbase, also fell.

FTX founder and CEO Sam Bankman-Fried is one of the most influential figures in the crypto space, and over the summer he became something of a one-man banker, spending around $1 billion to prop up struggling companies , as crypto prices plummeted.

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

“I’m really shocked by this,” an industry leader told CNN Business. “FTX fails… would be sort of a Lehman Brothers event for space. But if they were successfully rescued, that would probably end at the pass.”

Binance and FTX did not immediately provide details about the deal, noting that the two sides would find out in real-time.

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

Fears over FTX and Alameda Research, Bankman-Fried’s trading house, began last week after a report published by crypto news site CoinDesk indicated that much of Alameda’s balance sheet was made up of FTT, a relatively illiquid token.

On Sunday, Zhao, the head of Binance, said his company would sell all of its stake — about $580 million — in FTT “due to the recent revelations.” His announcement spooked investors and sent the FTT plummeting.

Essentially, Bankman-Fried received a $580 million capital call and didn’t have the liquidity to meet it.

It’s an “incredible situation and basically a total departure from anything you would have expected just a week ago,” the industry executive told CNN Business.

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