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Binance-FTX Calls Off, Worsening Crypto Winter

Updated: Dec 9, 2022


Binance, the largest cryptocurrency exchange in the world, has recently decided to halt its acquisition of FTX, as conveyed on its official Twitter account, Thursday (11/10). Earlier on, they had already settled into an agreement to purchase FTX, which added an unexpected twist to a months-long social media spat between Binance CEO Changpeng Zhao and FTX founder Sam Bankman-Fried. Zhao said Binance reached the decision after a request for help with its liquidity crisis from the three-year-old crypto exchange FTX. Binance signed a non-binding letter of intent (LOI) which allowed them to back out of the deal at any time. Consequently, Binance calls off its acquisition due to corporate due diligence, recent news reports about customer funds that were allegedly mishandled, and alleged US agency investigations regarding FTX. As Changpeng Zhao stated on Twitter, the deal could not proceed due to the extremely dynamic situation. The market's two largest centralized cryptocurrency exchanges would have been united if the transaction had gone through. According to Coingecko, as of Wednesday (11/9), Binance accounted for US$49 billion, and FTX accounted for US$4 billion in trading volume in the previous day, accounting for about one-quarter of all crypto trading volume. In addition, a similar occurrence has happened previously; Bolt has reportedly canceled its US$1.5 billion deal to acquire cryptocurrency infrastructure provider, Wyre.


Binance CEO, Changpeng Zhao, stated on Twitter, Tuesday (11/8) that FTX was experiencing a "severe liquidity crisis" which could eventually do collateral damage to the crypto industry altogether. Binance stepped up to save consumers and prevent such catastrophe by willing to provide liquidity but surprisingly backed out from the deal a day after, stating that the situation had grown beyond their control and capability to help. FTX's relationship with its sister entity Alameda Research, the trading house at the heart of its digital-asset empire, and FTX US is being investigated by the U.S. Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) after the liquidity issue. Their reports about FTX and its dealings are most likely to have alarmed its investors and contributed to FTX token’s FTT downfall. The transfer of investor funds has slowed, and the price of the FTX token has fallen precipitously. According to Changpeng Zhao, Binance has decided to liquidate any remaining FTT due to the recent revelation that has come to light, resulting in many people following Binance’s steps. In addition, FTX CEO Sam Bankman-Fried disappeared from the Bloomberg Billionaires Index with his estimated personal wealth plunged nearly 94% to US$991.5 million in one day. However, FTX plummeting remains unfavorable neither for the industry, nor Binance.


Reflecting upon the once-trending, crypto winter-provoking tumble of TerraLUNA, Celcius, and 3AC, the potential collapse of FTX is predicted to further worsen the market’s downward spiral. Subsequently, the plummeting of Bitcoin and other crypto assets which affected retail investors brought down the value of their holdings and ended up causing FTX customers to begin pulling their investments. As the platform and its assets remain fine, Bankman-Fried calmed the nerves of people as he conveyed on Twitter, Monday (11/7), that competitors are spreading false rumors to chase down the trading company. By midnight, they had reportedly suffered US$654 million in net withdrawals over the previous 24 hours, projected by analytics firm Nansen. It is confirmed that FTT has gone down over 58% to roughly US$2.28 after the recently-issued news of Binance backing out from the planned acquisition deal. In the turbulent wake of the last few days, FTT is now down a shocking 91% for the week, and is down 97% from its all-time high of US$84.18 back in September 2021, according to price data from CoinGecko. Consequently, some circulating reports convey that FTX must raise US$46 billion in financing to amend their balance sheet. Furthermore, the CEO of Binance said that his group would sell its entire holdings of the FTT token, worth almost US$600 million. Ultimately, the potential collapse of FTX would lead to large institutional accredited investors such as Temasek, Softbank, Sequoia, and Blackrock to suffer substantial loss of a combined US$1.8 billion in venture funding of the firm. That being the case, retail consumers as well as the industry as a whole will also continue to slow down as the public loses confidence and trust in the world of crypto.


Sources:

Bloomberg

Reuters

Washington Post


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