Crypto exchange Binance to buy rival FTX amid liquidity crunch

Billionaire Changpeng ‘CZ’ Zhao has consolidated his position atop the crypto world with a stunning move to take over FTX.com, the suddenly 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 Mr Zhao actively undermining confidence in FTX’s finances and helping spark an exodus of users from the three-year-old FTX.com exchange. A day before reaching a deal, Mr Bankman-Fried said on Twitter that assets on FTX were “fine”.

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 about a decade year after its founding. It was Bankman-Fried who was pushing for greater regulation, something that Mr Zhao has largely opposed.

Terms of the emergency buyout were scant, helping to send prices of cryptocurrencies tumbling after a brief rebound. 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 in recent years as the ready-for-prime-time face of crypto and amassed a fortune approaching $20 billion (€19.92 billion).

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The acquisition will reshape the more than $1 trillion industry that 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,” Mr 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,” Mr Bankman-Fried 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 a fast comeuppance for Mr 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.

Bitcoin swung between gains and losses, and dropped below $19,000 for the first time since October 21st. BNB, the native token of the Binance blockchain, did the same and was down about 5 per cent after initially jumping as much as 15 per cent.

For the crypto industry broadly, FTX’s demise is another example of a once-towering player laid low when a crisis of confidence forced a run on its assets. Like others before it, including lenders Celsius Networks and hedge fund Three Arrows Capital, reserves proved inadequate when market sentiment turned against it, even as top executives said nothing was amiss.

The tension between Mr Bankman-Fried and Mr Zhao has been brewing almost since the start. Back in 2019, Binance invested into FTX, then a derivatives exchange. The next year, Binance launched its own crypto derivatives, quickly becoming the leader in this space.

Tensions rose as the two companies increasingly had been seen as different by regulators. Mr Bankman-Fried was testifying in Congress, while Binance was said to be facing regulatory inquiries around the world and emphasised it is not headquartered anywhere.

The two companies have also been competing for assets, with both bidding for assets of Voyager Digital. FTX won the auction of Voyager.

The drama reached fever pitch on Sunday when Mr Zhao announced he would sell all of his FTT holdings, 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, a trading house owned by Bankman-Fried, had a lot of its assets in FTT token. FTT tumbled by more than 70 per cent to about $6, according to prices on CoinMarketCap.

Binance is the largest crypto exchange by far, with trading volume of about $40 billion so far today. FTX is second in spot trading, with volume of about $4 billion, according to CoinMarketCap data. CoinMarketCap is owned by Binance. – Bloomberg