Binance has pulled out of its acquisition deal with FTX, leaving the fellow crypto exchange on the brink of bankruptcy.
Binance CEO Changpeng Zhao released a statement following the announcement, explaining that FTX’s downfall would affect the entire crypto ecosystem. He added that pulling out from FTX’s deal should not be considered a “win” for Binance.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity,” Binance explained. “But the issues are beyond our control or ability to help.”
As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
Earlier this week, FTX founder and CEO Sam “SBF” Bankman-Fried attempted to raise funds to close the gap in the company’s balance sheet.
Reports said that FTX had received a $210 million boost from Sequoia Capital, a prominent Silicon Valley-based venture capitalist. SBF eventually approached Binance, who later announced a non-binding agreement to acquire FTX’s non-U.S. businesses, which at the beginning of 2022 was valued at $32 billion.
According to reports, FTX told investors its operational costs would drop to $144 million this year, against $338 million last year. Meanwhile, the company projected that its revenue would go up by $100 million to $1.1 billion. After the deal between Binance and FTX fell through, it became unclear who would purchase the crypto exchange.
FTX’s issue started last week when a balance sheet of Alameda Research, its sister company, circulated on the internet. The leaked sheet raised concerns about the financial health of Alameda since it listed most of the company’s assets as FTT.
Several FTX employees told us that their coins cannot be withdrawn in FTX, and have no idea of the relationship between Alameda and FTX, some employees even continue to buying FTT in these days because the trust of company. They felt that the SBF needed to explain. https://t.co/DLeB51vFvk
— Wu Blockchain (@WuBlockchain) November 9, 2022
FTT is the native token of FTX, which encourages its customers to utilize the coins within the crypto exchange to receive benefits like lower transaction costs. Alameda’s large share of FTT increased the risk of liquidity issues if the token’s price plunged.
A similar case happened this May when altcoin LUNA followed the demise of its sister coin, Terra, causing several crypto companies linked to the tokens to go defunct. Alameda CEO Caroline Ellison has addressed the news, saying that the leaked balance sheet did not reflect the company’s actual financial situation.
Zhao later announced that Binance would liquidate its FTT assets in increments last week. The CEO explained that following its exit from FTX’s equity stake in 2021, Binance kept $2.1 billion in BUSD and FTT assets.
Zhao’s announcement and FTX’s prolonged issue led to a wave of liquidation in FTX. Sources have said FTX is facing an $8 billion shortfall due to a large volume of liquidation from its current users.
Not even that, there is no warning or news any where on the site about no withdrawal, or about potential acquisition.
— Adam Cochran (adamscochran.eth) (@adamscochran) November 9, 2022
Called this out right away and its still going.
It's fucking criminal.
If you don't follow news, you might just think coins are down bad.
Within several days, the exchange received withdrawal demands amounting to $6 billion. Last Tuesday, FTX froze withdrawals for its customers to deal with its backlog.
Crypto prices drop
The crypto market continued its bearish trend following Binance’s exit from the FTX deal.
Bitcoin fell for two consecutive days, losing 13 percent on Tuesday and then 15 percent on Wednesday. For the first time since November 2020, the token traded below the $16,000 line. Ether also lost more than 30 percent of its value within two days. The token hovered just above its support line of $1,000 per unit.
Meanwhile, FTT lost 80 percent in two days. Its value was around $5 per unit on Tuesday, losing more than $2 billion of its total market value in a day. Data from Wednesday revealed that FTT’s price further dropped to around $2.30.