Binance plans to buy FTX’s non-U.S. operations in latest crypto bailout

WASHINGTON/LONDON, Nov 8 (Reuters) – Crypto giant Binance has signed a non-binding deal to buy non-U.S. unit of FTX rival FTX.com to help cover a “liquidity crunch” to the cryptocurrency exchange, the companies said Tuesday, in a surprise move that raised further concerns about the risks investors face in the volatile crypto market.

Binance CEO Changpeng Zhao said in a tweet that FTX, led by billionaire Sam Bankman-Fried, had “asked for our help” after “a major liquidity crisis.”

He said Binance, the world’s largest crypto exchange, will conduct due diligence in the coming days as the next step towards an acquisition of FTX.com. US operations of Binance and FTX are not part of the deal, Bankman-Fried said in a separate tweet.

“It’s been an open secret for a while now that FTX and Binance were in existential competition; the only surprise today is that things escalated so quickly to an apparent conclusion,” said Joseph Edwards, adviser in investment at Securitize Capital. “This decision should bring relief to consumers in the short term, but creates long-term questions.”

The deal 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.

It also underscores a sharp reversal of fortune for Bankman-Fried, who had positioned itself as the savior of the industry by rescuing rivals who got into trouble earlier in the year.

“Cash shortage issues continue to haunt the crypto market,” said Dan Raju, CEO of Tradier, a financial services provider and broker. “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. strange bedfellows.”

FTX had seen about $6 billion in withdrawals in the 72 hours to Tuesday morning, according to a message to staff sent by Bankman-Fried that was seen by Reuters.

“On an average day, we have tens of millions of dollars in net inflows/outflows. Things were mostly average until this weekend a few days ago,” Bankman wrote- Fried in the message to staff sent Tuesday morning. “In the last 72 hours, we’ve had around $6 billion in net withdrawals from FTX.”

Withdrawals on FTX.com are “effectively suspended”, he wrote, adding that this will be resolved in the “near future”.

FTX did not immediately respond to a request for comment on the message to staff.

“A LEGITIMATE REASON TO CONCERN”

The deal comes after crypto exchange FTX’s internal token crashed, losing a third of its value and dragging down other major digital assets, amid talk of pressure on FTX’s finances.

Binance, which dominates the crypto industry, with more than 120 million users, is currently under investigation by the US Department of Justice over possible violations of money laundering rules, reported Reuters last week.

A spokesperson for the US Commodity Futures Trading Commission said the agency was monitoring the situation.

News of the deal initially buoyed major cryptocurrencies, but those gains were quickly erased.

The FTX token – which offers holders discounts on FTX trading fees – last traded at 11.83, down 47%.

Bitcoin, the largest digital token, fell 6%.

“People have a legitimate reason to be concerned about the security of their digital assets if one of the largest centralized exchanges in the world finds itself in financial difficulty,” said Pascal Gauthier, CEO and president of the crypto security firm. Ledger. “It’s time for an honest, industry-wide account of the importance of crypto custody.”

Crypto users asked questions on Twitter last week about the FTX token following a report by news site CoinDesk on a leaked balance sheet from Alameda Research, a trading company founded by Bankman-Fried that maintains close ties with FTX.

On Sunday, Zhao said his company would liquidate its holdings of FTX tokens due to unspecified “recent revelations”.

Bankman-Fried initially said the swap was “fine” and the concerns were “false rumours.”

In a tweet on Tuesday, he said his teams were working to clear the backlog of withdrawals: “This will eliminate 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, referring to the rival CEO who uses his initials.

Reporting by Tom Wilson in London and Hannah Lang in Washington Additional reporting by Tom Westbrook in Singapore, Prentice in Washington and Angus Berwick in New York Editing by Megan Davies, Catherine Evans and Matthew Lewis

Our standards: The Thomson Reuters Trust Principles.

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