Cash crunch forces FTX.com into buyout deal with Binance
Crypto exchange turns to rival after seeing withdrawals of $6 billion in 72 hours.
Billionaire Changpeng “CZ” Zhao became the undisputed king of the crypto world Tuesday, shocking the industry with a move to take over FTX.com, the troubled firm led by his chief rival and onetime disciple, Sam Bankman-Fried.
The letter of acquisition intent by Zhao’s Binance Holdings came after a bitter feud between the two men spilled into the open, with Zhao actively undermining confidence in FTX’s finances and helping spark an exodus of users from the 3year-old FTX.com exchange. A day before accepting the deal from Binance, Bankman-Fried said on Twitter that assets on FTX were “fine.” By Tuesday, he had changed his messaging.
Such moves would be prohibited on Wall Street but aren’t uncommon in this rough-and-tumble corner of finance, which remains largely devoid of regulation. Bankman-Fried has pushed for greater regulation of crypto, something that Zhao has largely opposed.
“I’m sorry I didn’t do better, and am going to do what I can to protect customer assets, and your investment,” Bankman-Fried wrote in a letter to investors. “I wish I had more details for you guys right now; I don’t yet,” the letter said.
After initially rising on the news, prices of cryptocurrencies tumbled, with terms of the deal scant and uncertainty swirling over whether it will even get done.
Binance said the agreement came after “a significant liquidity crunch” befell FTX and the firm asked for its help. The takeover is a startling twist for FTX, whose 30-year-old founder had emerged as the ready-forprime-time face of crypto and amassed a fortune approaching $20 billion.
The acquisition — which doesn’t involve FTX.US, a separate exchange also founded by Bankman-Fried — will reshape the more than $1-trillion industry, which is already dealing with a prolonged market downturn. The two founders made the announcement on Twitter concurrently.
“To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch,” Zhao said in a tweet.
FTX was hit with about $6 billion in withdrawals in the 72 hours before Tuesday morning, Reuters reported, citing a message sent to staff by Bankman-Fried.
“Our teams are working on clearing out the withdrawal backlog,” BankmanFried said on Twitter. “This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in.”
It’s fast comeuppance for Bankman-Fried, no stranger to bare-knuckled exploits in his role as founder of Alameda Research, the crypto trading firm whose fate was left unmentioned in the tweets announcing the bailout. The former Jane Street trader has been unapologetic about Alameda’s willingness to pounce on profit opportunities in the Wild West crypto space, framing it as part of a long-term plan to give away billions to charity.
FTX.com was valued as recently as January at $32 billion in a fundraising round from investors including Temasek, Paradigm, Ontario Teachers’ Pension Plan Board and SoftBank Vision Fund 2.
Bitcoin swung between gains and losses, and fell below $19,000 for the first time since Oct. 21. BNB, the native token of the Binance blockchain, did the same and was down about 5% after initially jumping as much as 15%.
For the crypto industry broadly, FTX’s troubles are another example of a oncetowering player laid low when a crisis of confidence forced a run on its assets.
Like others before it, including hedge fund Three Arrows Capital, the company found its reserves were inadequate when market sentiment turned against it, even as top executives said nothing was amiss.
The tension between Bankman-Fried and Zhao has been brewing almost since the start. In 2019, Binance invested inFTX, then a derivatives exchange. The next year, Binance launched its own crypto derivatives, quickly becoming the leader in that space.
Tensions rose as the two companies increasingly were seen as different by regulators. Bankman-Fried was testifying in Congress, while Binance was said to be facing regulatory investigations around the world and emphasized that it’s not based anywhere.
The two companies have also been vying for assets, with both bidding for assets of Voyager Digital. FTX won the auction of Voyager.
The drama reached fever pitch Sunday, when Zhao announced he would sell all of his holdings of FTT, the native token of FTX exchange, worth $529 million at the time, due to “recent revelations that came to light.” The tweet followed a story from CoinDesk saying that Alameda Research had a lot of its assets in FTT tokens. FTT tumbled by more than 70% to about $6, according to prices on CoinMarketCap.
Binance is the largest crypto exchange by far, with trading volume of about $40 billion on Tuesday. FTX is second in spot trading, with volume of about $4 billion, according to data from CoinMarketCap, which is owned by Binance.