United States: In a surprise bailout that renews investor concerns about cryptocurrency, cryptocurrency giant Binance on Tuesday signed a non-binding agreement to buy a non-US unit of FTX, in a bid to replace the rival exchange deal. To help deal with the "liquidity crunch".
FTX CEO Sam Bankman-Fried and Binance CEO Changpeng Zhao reached a settlement while FTX's financials were the subject of rumours, leading to withdrawals of US$6 billion in the 72 hours before Tuesday morning.
Zhao, who tweeted on Sunday that Binance would liquidate its holdings of rival tokens due to unspecified “recent revelations”, played a part in putting pressure on FTX.
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Dan Raju, CEO of Trader, a brokerage financial services firm, said: “It is horrifying to think that one of the largest cryptocurrency exchanges in the world, FTX, was cut off over liquidity concerns and that their biggest rival, Binance, has come to their rescue. Used to be. ."
The change in fortunes of 30-year-old billionaire banker-turned-dramatic Fried is the latest emergency crypto hedge this year as investors flee riskier assets due to rising interest rates. Since its peak, the cryptocurrency market is down by almost two-thirds, reaching US$1.07 trillion.
Upon hearing of the settlement on Tuesday, the major cryptocurrency initially surged, but those gains were quickly lost. The value of the FTX token, which offers owners a discount on FTX trading fees, fell by more than three-quarters and was last trading at US$5.33.
The largest digital token, bitcoin, was down 11%. After its shares fell more than 10%, Coinbase Global Inc. assured investors in a blog that it has very little exposure to FTX.
Forbes estimates that Bankman-Net Fried is worth $16.6 billion, and has previously said he has billions available to help the struggling digital asset platform. In May he joined Robinhood Markets Inc. disclosed a 7.6% stake in the company, taking advantage of the trading app's falling share price.
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Tuesday's developments have forced FTX investors to understand what the deal with Binance means for their investment in FTX, according to people familiar with the situation.
Banksman-Fried attempted to reassure FTX investors in a note shared on Twitter and verified by a source with knowledge of the situation late Tuesday. In the note, Bankman-Fried said that "protecting shareholders is our top priority," but added that the specifics of the deal "are still being worked out."
A request for comment from FTX was not immediately complied with. The terms of the deal were not disclosed by the parties, and its conclusion is still uncertain.
The largest cryptocurrency exchange in the world, Binance, will be doing due diligence in the coming days as an initial phase of buying FTX.com.
According to California native Bankman-Fried, who now lives in the Bahamas, where FTX is headquartered, neither Binance nor FTX's US operations are included in the agreement. The response of regulators to a deal between the two cryptocurrency exchanges is unclear.
According to antitrust experts, US antitrust enforcers may insist on looking at the merger. According to Seth Bloom, an antitrust expert at Bloom Strategic Counsel, if they think it will negatively impact US clients, they can file a lawsuit to stop it.
According to Reuters last week, the US Justice Department is also looking into Binance for possible money-laundering breaches. This is just one of several investigations this year into Binance's troubled past with financial regulatory compliance.
Reuters last month provided new information on Binance's strategy to avoid regulation and the ongoing chaos in its compliance program. In response, Binance said it was working to raise industry standards and aimed to increase its ability to detect fraudulent cryptocurrency activity.
Zhao, also known by his initials CZ, and Bankman-Fried, two of the most influential businessmen in the cryptocurrency space, have a turbulent history together.
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Binance invested in FTX, a very small exchange at the time, in late 2019 before selling its stake in July of that year. By that time, FTX had grown into a significant rival to Binance, the market leader in the cryptocurrency space with over 120 million users.
Tensions between Zhao and Bankman-Fried have surfaced recently, following a report from news website CoinDesk on a balance sheet leaked from Alameda Research, a trading firm founded by Bankman-Fried with close ties to FTX, Twitter. But with public disagreement.
But the evacuation was happening very quickly. In a message to employees Tuesday morning, Banksman-Fried said that "on an average day, we have tens of millions of dollars in net/outflow," adding that the total had reached billions.
Binance's Zhao stated that FTX had "asked for our help" following "a significant liquidity crunch" in a tweet announcing the deal on Tuesday.
Bankman-Fried stated that his teams were attempting to reduce the backlog of withdrawals: "This will alleviate liquidity constraints. One of the main reasons we invited Binance in is because of this.