Shockwaves hit crypto markets after Binance announcement
The cryptocurrency exchange Binance said it plans to buy its rival FTX Trading, in the latest example of how fortunes can change rapidly in the crypto world.
Binance CEO Changpeng Zhao said on Twitter Tuesday that his company had signed a letter of intent to buy FTX because the smaller exchange was experiencing a “significant liquidity crunch.” The deal was pending due diligence, Zhao said on Twitter.
The announcement stunned crypto investors, as a tie-up between the two largest crypto exchanges by volume would mark a tectonic power shift in the industry.
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In an unexpected twist, the cryptocurrency exchange Binance said it is buying its smaller rival FTX after the firm faced a liquidity crisis that rattled digital assets and sparked contagion fears. Adobe Stock
The news prompted a brief recovery in digital assets but wasn't enough to calm anxious investors.
Bitcoin tumbled more than 10 per cent to hit a 52-week low around US $17,600, according to CoinDesk.
FTX's in-house coin FTT cratered, losing 85 per cent of its value.
Other digital assets and equities tied to the industry, such as Coinbase, also fell.
FTX is the latest cryptocurrency company this year to come under financial pressure as crypto assets such as bitcoin and ethereum have collapsed in value.
Failures include Celsius, a bank-like company that took in crypto deposits in exchange for yield, as well as an Asia-based hedge fund known as Three Arrows Capital.
FTX's founder Sam Bankman-Fried is one of the most influential figures in the crypto space, and became something of a one-man bank over the summer, shelling out around $1.5 billion to prop up ailing firms as crypto prices sank.
On Tuesday, though, the tables were turned as Bankman-Fried's firm faced a run on FTT.
"I'm actually shocked by this," an industry executive told CNN.
"FTX failing ... would be kind of like a Lehman Brothers event for the space. But if they have been successfully bailed out, then that would probably head things off at the pass."
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Samuel Bankman-Fried, founder and CEO of FTX, said the deal with Binance would protect the exchange's customers AP
Binance and FTX didn't immediately provide details about the deal, and noted the two sides were figuring it out in real time.
"There is a lot to cover and will take some time," Zhao tweeted.
"This is a highly dynamic situation, and ... Binance has the discretion to pull out from the deal at any time."
Fears over FTX and Alameda Research, Bankman-Fried's trading house, began last week after a report published by crypto news site CoinDesk suggested that much of Alameda's balance sheet was made up of FTT, which is a relatively illiquid token.
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On Sunday, Zhao, the head of Binance, said his company would sell all of its holdings — about $890 million — in FTT, "due to recent revelations."
His announcement spooked investors and caused FTT to plummet.
In essence, Bankman-Fried was getting a capital call for $890 million, and didn't have the liquidity to meet it.
It's an "unbelievable situation, and basically a complete shift from anything anyone would've expected even a week ago," the industry executive told CNN.
With CNN and AP
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