Binance-FTX buyout sends shockwaves through crypto markets


New York
CNN Business

In an unexpected twist, cryptocurrency exchange Binance said it was buying its smaller rival FTX after the firm faced a liquidity crunch that sent digital assets crashing and sparking contagion fears.

“This afternoon, FTX asked for our help,” Zhao “CZ” Changpeng tweeted on Tuesday. “There is a significant liquidity crunch. For the protection of users, we have made a non-binding signature [letter of intent] Willing to fully acquire http://FTX.com and help cover liquidity crisis.”

The announcement shocked crypto investors, as a tie-up between the two largest crypto exchanges by volume would mark a tectonic power shift in the industry.

The news prompted a brief recovery in the digital asset but was not enough to calm anxious investors.

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Bitcoin fell more than 10% to a 52-week low of $17,600 on Tuesday, according to CoinDesk. FTX’s internal currency FTT plunged, losing 85% of its value. Other digital assets and equities tied to the industry, such as Coinbase, also fell.

Sam Bankman-Fried, the founder and CEO of FTX, is one of the most influential figures in the crypto space, and over the summer he became a one-man bank, spending nearly $1 billion to help companies ailing as crypto prices plummeted.

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

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“I’m actually shocked by it,” one industry executive told CNN Business. “FTX failing … would be like a Lehman Brothers event for space. But if they are successfully bailed, it will probably move towards passage.”

Binance and FTX did not immediately provide details about the deal, and noted that both parties are working it out in real time.

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

Fears over FTX and Bankman-Fried’s trading house Alameda Research, a report published last week by crypto news site CoinDesk suggested that the majority of Alameda’s balance sheet is made up of FTT, a relatively liquid token.

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On Sunday, Binance chief Zhao said his company would sell all of its holdings — about $580 million — in FTT, “due to recent disclosures.” His announcement spooked investors and FTT fell.

In essence, Bankman-Fried received a capital call for $580 million, and did not have the liquidity to meet it.

It’s an “unbelievable situation, and basically a complete turnaround from what anyone expected even a week ago,” industry executives told CNN Business.

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