Binance pulls out of deal to buy FTX.com exchange – Ledger Insights
Binance cryptocurrency exchange has withdrawn from its non-binding letter of intent to acquire FTX.com.
The exchange statements reads“As a result of corporate due diligence, as well as recent news reports of mishandled customer funds and alleged US agency investigations, we have decided not to pursue the potential acquisition of FTX.com,” Binance said, which was also tweeted.
It was reported by the New York Times that FTX is looking to raise $8 billion to bail it out and has experienced $6 billion in withdrawals since Sunday.
The run on the FTX exchange started on Sunday when Binance CEO Changpeng Zhao (CZ) tweeted plans to sell his holdings of FTX’s token, FTT, and compared it to the LUNA/Terra crash. This followed a report by Coindesk last week that Alameda Research, the market-making firm owned by FTX CEO Sam Bankman-Fried, had $5.8 billion in FTT and FTT security.
Following the deal announcement, CZ tweeted on Tuesday,
“1: Never use a token you created as security.
2: Don’t borrow if you run a crypto business. Don’t use capital “efficiently”. Has a large reserve.
Binance has never used BNB as collateral and we have never taken on debt.”
One has to guess that then CZ had some data. If FTX’s balance sheet hole is due to the price of FTT tanking, the Binance deal seemed to exacerbate the problems. Between the start of the run and CZ’s acquisition tweet, the FTT price dropped from $23 to around $15 and stabilized. It partially recovered shortly after the rescue tweet. But after that it dropped to just over $4. It may have created a far more significant rescue problem. Currently the price is $2.65.
But the run doesn’t just have to deal with the FTT token. FTX.com was particularly known for its derivatives and perpetual futures offering significant leverage. Being able to provide leverage means that the crypto exchange borrows money or has significant capital. FTX clearly did not have a significant capital buffer.
Some of the tweets of FTX CEO Bankman-Fried were deleted in the last few days. That includes one on Monday that said: “FTX has enough to cover all client holdings. We do not invest client funds (even in Treasuries).”
From Binance’s perspective, it is already receiving enough regulatory attention. If there is a major investigation into FTX, and owns FTX, it won’t have the extra attention. And the authorities would have the right to ask Binance a lot of questions.
Accidental damage
FTX was also a supporter of the Solana blockchain. Apart from the FTT token, Solana is the biggest loser, falling 50% in the last seven days. The second biggest drop is Dogecoin.
In related news, one of the FTX backers, Sequoia Capitalhas already written down its inventory to zero.
And Silvergate Capital’s share price drops more than 30% in one day. It is the bank that acts as a stop and go for many digital asset companies. There are concerns about potential loans backed by cryptocurrency tokens. However, if a large exchange has large cash holdings drawn down without warning, that could also have an impact. However, the Wall Street Journal quoted Silvergate president Ben Reynolds as saying, “FTX’s challenges have not had a direct impact on the company.”
