Binance pulls out of deal to save rival crypto exchange FTX

Binance pulls out of deal to save rival crypto exchange FTX

Binance will pull out of a deal to rescue Sam Bankman-Fried’s FTX cryptocurrency exchange, citing concerns about its business practices and investigations by US financial regulators.

The move comes a day after Binance, one of the world’s largest cryptocurrency exchanges, tentatively agreed to buy FTX after suffering a liquidity crisis.

“As a result of corporate due diligence, as well as the latest reports regarding the misappropriation of client funds and alleged investigations by US agencies, we have decided not to proceed with the potential acquisition of FTX.com,” Binance said in a statement late Wednesday.

Bankman-Fried told investors on Wednesday that FTX needed up to $8 billion in financing after being inundated with requests from clients to withdraw as its deal with Binance looked certain to collapse, according to two people familiar with the matter.

The twist came when the Securities and Exchange Commission expanded its investigation FTXwhich includes an examination of the platform’s cryptocurrency lending and client asset management products, according to a person familiar with the matter.

Wall Street’s top regulator launched an investigation months ago, but has since sent additional requests for information Binance announced on Tuesday that it would buy FTX amid a liquidity crunch, the person added. The agency is also investigating FTX’s relationship with the US entity, FTX US.

The Commodity Futures Trading Commission was also investigating the company, Bloomberg reported. The SEC and CFTC declined to comment. FTX did not immediately respond to requests for comment on the regulatory probe.

Bitcoin and other crypto-related assets have fallen sharply in the past two days as traders worry about the fallout from the potential collapse of FTX, one of the largest cryptocurrency trading venues, and Alameda Research, a major digital asset trading firm also controlled by Bankman. -Fried.

Bitcoin, the most actively traded cryptocurrency, fell more than 14 percent to below $16,000, its lowest level since late 2020. Solana, a coin that counts Alameda as the main holder, fell 44 percent, while shares in the crypto exchange on on the American stock exchange Coinbase fell by 9.5 percent. Coinbase declined to comment.

A line chart of the price of Bitcoin, $ showing the decline of Bitcoin as FTX suffers a decrease in liquidity

“The markets are now in full panic,” said Jon de Wet, chief investment officer at crypto wealth manager Zerocap. “All hell breaks loose.”

On Wednesday evening, Sequoia Capital told its investors that it had reduced its stake in FTX to zero. The California venture capital firm has invested $213 million in FTX companies in 2021 across two of its funds. A fundraising round in October of that year valued FTX at $25 billion.

“We are in the business of taking risks,” Sequoia said in a letter to investors. “At the time of our investment in FTX, we conducted a rigorous due diligence process.” FTX generated about $1 billion in revenue and more than $250 million in operating income in 2021, Sequoia said.

The collapse of the short-lived contract between Binance and FTX comes months after major failures by once-prominent crypto groups, including lender Celsius Network and hedge fund Three Arrows Capital.

Bankman-Fried has built a reputation as a crypto savior amid the turmoil, backing struggling companies including lender BlockFi.

The latest phase of the cryptocurrency selloff is more concerning as “the number of entities with stronger balance sheets that can rescue low-cap, high-leveraged ones is shrinking within the crypto ecosystem,” JPMorgan said in a note on Wednesday.

FTX has previously admitted that it is unable to meet customer withdrawal requests without external funding. “It’s bad for FTX clients, they have money trapped in FTX and they can’t get it out,” said Jim Bianco, president of Bianco Research, a consulting firm.

Binance CEO Changpeng Zhao reached an agreement to buy FTX and protect its customers’ deposits after just hours of negotiations on Tuesday, after Bankman-Fried approached his former investor-turned-rival for help.

“Before that, I had very little knowledge of the internal state of affairs at FTX,” Zhao said in a memo to his staff on Wednesday.

Binance’s chief hoped to prevent more clients from suffering losses after this year’s string of major setbacks dented confidence in the sector. He also wanted to prevent a chain reaction of damage to firms exposed to FTX and Alameda through borrowing or trading positions.

“We initially hoped to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to assist,” Binance said. “Every time a major player in the industry fails, retail consumers will suffer.”

Additional reporting by Tabby Kinder in San Francisco

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