A failed FTX-Binance deal is ‘catastrophic’ for the crypto sector

Betting on Sam Bankman-Fried (SBF), the once beloved poster boy and “white knight” of crypto was supposed to be safe. But recent events have shown that is far from the truth.

Following the collapse of the Terra ecosystem, the Celsius bankruptcy and the explosion of Three Arrows Capital, the crypto industry fell into further turmoil this week after SBF’s crypto exchange FTX was forced to seek a bailout amid liquidity problems. While a non-binding deal with rival Binance briefly quelled the panic on Tuesday, things took an even darker turn after CoinDesk reported on Wednesday morning that Binance was highly unlikely to go through with the proposed acquisition. Late Wednesday afternoon, Binance itself confirmed that the deal is off, sending crypto markets plunging even further, with bitcoin (BTC) dipping below $16,000 for the first time in two years.

Unless another buyer is waiting in the wings, Binance’s exit from the acquisition likely seals the fate of FTX, and with it confidence in the crypto industry will further decline from both retail and institutional investors.

“A lot of normal users will lose their money, so this will be catastrophic for the ecosystem in the short term,” said Jay Jog, co-founder of Layer 1 blockchain Sei Network. “There will be weakened confidence in crypto in the short term, both from an institutional standpoint and from a retail standpoint,” he added.

This sentiment was echoed by SmartBlocks founder Mark Fidelman, who told CoinDesk: “If the deal between FTX and Binance doesn’t happen, we’ll have to see another big player step in like Coinbase to bail them out. Otherwise, confidence will further erode in the crypto market, and we will all suffer for at least 6 months to a year.”

“This also sets back our industry as far as growth and trust across other industries that want to support and engage with crypto, and it will also affect other players in the crypto space that have assets tied and connected to FTX,” said Dan Edlebeck , head of ecosystem at Sei Network.

Read more: Who still has exposure to FTX?

However, there may not be a total exodus of institutional investors as they already have a large presence in the sector. “Whatever the outcome, I don’t think it will cause institutional investors to pull money out of the sector significantly,” said Kevin March, co-founder of cryptocurrency brokerage Floating Point Group. “Everybody that’s here right now is here to stay … We’re still having conversations with institutions that are interested and trying to figure out how to enter the space this week despite the backdrop,” he added.