Binance steps in with a deal to save a rival exchange after a lot of people pulled their money out.
Sam Bankman-FTX, Fried’s, one of the largest crypto exchanges, was on the verge of bankruptcy. It made a deal with its biggest rival, Binance, to save itself after a rush of customer withdrawals caused it to run out of money.
Changpeng “CZ” Zhao, the CEO of Binance, said on Twitter that FTX, “asked for our help” and that “there is a significant liquidity crunch.” Binance has signed a letter of intent to buy FTX, but it said it could back out of the deal at any time.
One of the biggest and most well-known companies in the global cryptocurrency market was saved by its biggest competitor, which sent shockwaves through the market. Bitcoin, which is traded the most, fell as much as 17 percent, while smaller coins fell more. The US-based cryptocurrency exchange Coinbase fell by about 14%.
At the beginning of this year, FTX was worth $32 billion. The company was backed by large investors like BlackRock, Canada’s Ontario Teachers’ Pension Plan, and SoftBank. Wall Street’s top regulator called FTX’s industry the “Wild West,” but most people thought it was one of the better-run companies. Its founder, Bankman-Fried, often lobbied lawmakers in Washington.
Bankman-Fried, who was known as SBF and wore shorts and a T-shirt as an unofficial uniform, had a paper fortune of about $24 billion only six months ago. He is one of the most well-known crypto executives. He has interviewed Bill Clinton and Tony Blair at conferences where he often speaks.
The deal with Binance ends a very public and explosive fight between Bankman-Fried and Zhao. It also brings together two of the biggest cryptocurrency exchanges in the world.
Over the weekend, FTX’s problems got worse when Binance said it was going to sell its FTT token holdings, citing worries about the exchange’s financial stability. This caused the price of the FTT token to drop sharply.
Bankman-Fried replied on Monday by saying, “A competitor is spreading false rumors about us to hurt us.” He also said that he would “love” to work with Zhao “for the ecosystem.”
Also, the head of FTX tried to calm the markets by saying, “FTX is fine. The assets are good.”
But on Tuesday, he tweeted: “CZ has done and will continue to do an amazing job of building the global crypto ecosystem and making the world’s economy freer.” Bankman-Fried also promised that all customer assets would be “covered one for one.” The deal was confirmed by FTX, but the terms were not made public right away.
If the deal goes through, it will make Binance the biggest platform for trading cryptocurrencies.
Ilan Solot, co-head of digital assets at Marex Solutions, said, “This makes Zhao the most powerful person in crypto.” “Zhao’s view of the world will matter a lot more in terms of how he wants to interact with regulators and policymakers… his views will carry a lot more weight.”
Since the Terra and Luna tokens failed in May, the crypto industry has had a hard time over the past year. The prices of bitcoin and ether, two of the most important tokens, fell, and a number of large companies, such as lender Celsius Network and hedge fund Three Arrows Capital, went out of business.
The rescue deal is also a big setback for Bankman-Fried, who was seen for a long time as a stable and ambitious figure in the often unstable world of crypto.
After the crypto market crashed this year, he helped failing companies and became known as an industry savior. In June, the head of FTX said that struggling cryptocurrency lender BlockFi would get a $250 million loan.
The loan came after an FTX loan worth about $485 million in cash and bitcoin saved a crypto broker called Voyager Digital.
But Bankman-Fried was also interested in traditional markets. He bought a piece of retail broker Robinhood in order to shake up trading on Wall Street’s futures and stock markets.
In 2021, FTX signed a contract to change the name of the Miami Heat’s basketball arena to the FTX Arena for the next 19 years. In 2021, Bankman-Fried said it was “not impossible at all” that he would buy Goldman Sachs.
The announcement sent shockwaves through the market for digital assets, causing a dramatic decline in cryptocurrency prices.
Bitcoin plunged more than 10% to reach its lowest price since November 2020.
In the meantime, the online trading platform Robinhood lost over 19% of its stock market value, while the cryptocurrency exchange Coinbase declined by 10%.