WASHINGTON/LONDON, Nov 8 (Reuters) – Crypto giant Binance signed a non-binding agreement on Tuesday to buy the non-U.S. unit of FTX to help cover a “cash shortage” at the rival exchange, in part of a stunning bailout that has sparked new concerns among investors about cryptocurrencies.
The deal between high profile rivals FTX CEO Sam Bankman-Fried and Binance CEO Changpeng Zhao came as speculation about FTX’s financial health snowballed into $6 billion in withdrawals in the 72 hours preceding Tuesday morning.
The pressure on FTX came in part from Zhao, who tweeted on Sunday that Binance would liquidate its holdings of the rival token due to unspecified “recent revelations”.
“It’s scary to think that FTX, which is one of the largest crypto exchanges in the world, has been bitten by liquidity issues and Binance, their biggest rival, is coming to their rescue,” Dan said. Raju, CEO of Tradier, a financial services provider. and brokerage.
The move, a dramatic reversal in the fortunes of billionaire Bankman-Fried, 30, is the latest emergency bailout in the cryptocurrency world this year as investors retreated from riskier assets amid rising interest rates. The cryptocurrency market has fallen about two-thirds since peaking at $1.07 trillion.
Major cryptocurrencies initially rallied on news of the deal on Tuesday, but those gains were quickly erased.
The FTX token – which offers holders discounts on FTX trading fees – last traded at $5.33, after falling by more than three-quarters. Bitcoin, the largest digital token, fell 11%.
In a blog post, Coinbase Global Inc (COIN.O) assured investors that it had minimal exposure to FTX after its shares fell more than 10%. Read more
Bankman-Fried, whose net worth is $16.6 billion according to Forbes, said just months ago that he had billions to help struggling digital asset platforms. In May, he disclosed a 7.6% stake in Robinhood Markets Inc (HOOD.O), capitalizing on the trading app’s weakened share price.
Tuesday’s developments left FTX investors scrambling to figure out what the deal with Binance means for their investment in FTX, according to people familiar with the matter.
In a note to investors Tuesday evening, shared on Twitter and verified by a source familiar with the situation, Bankman-Fried tried to reassure FTX investors, saying “shareholder protection is our top priority,” but said that details of the deal were “yet to be hashed out.” FTX did not immediately respond to a request for comment.
The companies did not disclose the terms of the deal, and it remains to be seen if it will go through.
Binance, the world’s largest crypto exchange, will perform due diligence in the coming days as the next step towards an acquisition of FTX.com. Binance and FTX’s U.S. operations are not part of the deal, said Bankman-Fried, who is originally from California but lives in the Bahamas where FTX is based.
It is unclear how regulators will view a deal between the two crypto exchanges.
U.S. antitrust authorities may insist on investigating the merger, antitrust experts have said. “They could take legal action to stop it if they think it’s having a negative effect on US customers,” said Seth Bloom, antitrust expert at Bloom Strategic Counsel.
Binance is also under investigation by the US Department of Justice for possible violations of money laundering rules, Reuters reported last week, one of a series of investigations this year into the Binance’s Troubled History of Financial Regulatory Compliance.
Last month, Reuters revealed new details about Binance’s strategy to keep regulators at bay and continued disarray in its compliance program. Binance said in response that it helps strengthen industry standards and seeks to improve its ability to detect illegal cryptographic activity.
A spokesperson for the US Commodity Futures Trading Commission said the agency was monitoring the situation. The Federal Trade Commission declined to comment.
TURBULENT RELATIONSHIP
Two of the most powerful tycoons in the crypto industry, Bankman-Fried and Zhao, known by his initials CZ, have had a rocky relationship.
In late 2019, Binance invested in FTX, then a much smaller exchange, before pulling out of investing in July last year. By then, FTX had become a growing rival to Binance, which dominates the crypto industry with over 120 million users.
Tensions between Zhao and Bankman-Fried have surfaced in recent days, with a public disagreement on Twitter, following a report by news site CoinDesk on a leaked balance sheet from Alameda Research, a trading firm founded by Bankman. -Fried who has close ties to FTX. Read more
However, the pace of withdrawals turned out to be too high. “On average, we have tens of millions of dollars in net inflows/outflows,” Bankman-Fried wrote in a message to staff sent Tuesday morning, explaining how that amount had grown into the billions.
FTX did not respond to a request for comment on the message to staff.
In a tweet announcing the deal on Tuesday, Binance’s Zhao said FTX had “asked for our help” after “a major liquidity crisis.”
Bankman-Fried said his teams are working to clear the backlog of withdrawals: “This will solve the liquidity issues. This is one of the main reasons we asked Binance to step in.”
“A *huge* thank you to CZ, Binance,” Bankman-Fried wrote.
Reporting by Tom Wilson in London and Hannah Lang in Washington Additional reporting by Tom Westbrook in Singapore, Prentice in Washington and Angus Berwick and Anirban Sen in New York Editing by Megan Davies, Catherine Evans and Matthew Lewis
Our standards: The Thomson Reuters Trust Principles.
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