Binance plans to buy key rival FTX in latest crypto bailout | Crypto news

Crypto giant Binance has signed a non-binding agreement to buy rival FTX’s non-US unit, FTX.com, to cover a “liquidity crisis” at the cryptocurrency exchange, the companies said on Tuesday.

The surprise move has raised fresh concerns about the risks investors face in the volatile crypto market.

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

Zhao said Binance, the world’s largest crypto exchange, would conduct due diligence in the coming days as the next step toward an acquisition of FTX.com.

In a separate tweet, Bankman-Fried said the US operations of Binance and FTX were not part of the deal.

“It has been an open secret for some time now that FTX and Binance were in existential competition; the only surprise today is that things have escalated so quickly to an apparent conclusion,” said Joseph Edwards, investment advisor at Securitize Capital. “The measure should provide relief to consumers in the short term, but creates questions in the long run.”

The deal is the latest bailout in the cryptocurrency world this year, as investors pulled out of riskier assets amid rising interest rates. The cryptocurrency market has fallen by about two-thirds from its peak – to $1.07 trillion.

It also underscores an abrupt reversal of fortunes for Bankman-Fried, which had positioned itself as the industry’s savior by rescuing rivals that had run into trouble earlier in the year.

“Liquidity issues continue to haunt the crypto market,” said Dan Raju, CEO of Tradier, a financial services provider and brokerage. “It’s scary to think that FTX, which is one of the biggest crypto exchanges in the world, was bitten by liquidity concerns and Binance, their biggest rival, is coming to their rescue. This will make for some strange bed traps.”

FTX had seen about $6 billion in withdrawals in the 72 hours before Tuesday morning, according to a memo to employees sent by Bankman-Fried, seen by Reuters.

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

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

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

Crypto mogul face-off

Two of the most powerful moguls in the crypto industry, Zhao and Bankman-Fried, have had a turbulent relationship.

In late 2019, Binance invested in FTX, then a much smaller exchange, before exiting the investment last July. By then, FTX had developed into a growing rival to Binance, which dominates the crypto industry with more than 120 million users.

Tensions between Zhao and Bankman-Fried had surfaced in recent days, with a public spat on Twitter.

“A competitor is trying to go after us with false rumors,” FTX’s Bankman-Fried tweeted on Monday, a day after Zhao said Binance would sell its holdings of FTX’s internal token, without providing further details. He tagged Zhao in a later tweet, saying “I’d love it, @cz_binance, if we could work together for the ecosystem.”

“Legitimate cause for concern”

The deal comes after crypto exchange FTX’s internal ticker fell, losing a third of its value and pulling down other significant digital assets, amid talk of pressure on FTX’s finances.

Binance is currently under investigation by the US Department of Justice for possible violations of anti-money laundering rules, Reuters reported last week.

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

News of the deal initially drove cryptocurrencies big, but those gains were quickly erased.

The FTX token last traded at $5.33, down more than three-quarters on Tuesday.

Bitcoin, the largest digital token, was down 11 percent.

“People have a legitimate reason to worry about the security of their digital assets if one of the world’s largest centralized exchanges runs into financial difficulties,” said Pascal Gauthier, CEO and chairman of crypto-security firm Ledger. “It’s time for an honest, industry-wide assessment of the importance of crypto custody.”

Crypto users raised questions on Twitter last week about FTX’s token after a report by news site CoinDesk that Alameda Research, a trading firm founded by Bankman-Fried that has close ties to FTX, appeared to be on shaky ground.

On Sunday, two days before the deal was announced, Zhao said his firm would liquidate its holdings of the FTX token due to unspecified “recent revelations.”

Bankman-Fried had initially said the exchange was “nice” and that the concerns were “false rumours”.

In a tweet on Tuesday, he said his teams were working to clear the withdrawal backlog: “This will remove the liquidity crisis. This is one of the main reasons we have asked Binance to come in.”

“A *huge* thanks to CZ, Binance,” Bankman-Fried addedreferring to Zhao who is known by his initials.