Cryptocurrency giant Binance has signed a non-binding agreement to acquire FTX’s non-U.S. rival, FTX.com, to address a “liquidity crisis” at the crypto exchange, the companies said on Tuesday.
The unexpected move has raised new 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, has “asked for our help” following “a significant liquidity crunch”.
Zhao said that Binance, the world’s largest cryptocurrency exchange, will conduct due diligence in the coming days as the next step towards acquiring FTX.com.
In a separate tweet, Bankman-Fried said Binance and FTX’s US operations were not part of the agreement.
“It has been a while secret that FTX and Binance are competing for existence; The only surprise right now is that things have escalated so quickly for a seeming conclusion,” said Joseph Edwards, investment advisor at Securifying Capital. “This move will give consumers some relief in the short term, but raises questions in the long run.”
The deal is the latest emergency rescue in the crypto world this year, as investors withdraw from riskier assets amid rising interest rates. The crypto market has dropped about two-thirds from its peak – to $1.07 trillion.
It also highlights the abrupt asset reversal of Bankman-Fried, who has positioned himself as the industry savior by rescuing rivals that have struggled earlier in the year.
“Liquidity crisis issues continue to haunt the crypto market,” said Dan Raju, CEO of Tradier, a financial services provider and broker. “It is scary to think that FTX, one of the largest crypto exchanges in the world, is hit by liquidity concerns and that Binance, its biggest rival, is coming to the rescue. This will make some weird bed friends. “
FTX was withdrawn about $6 billion in the 72 hours before Tuesday morning, according to a message sent to Bankman-Fried employees, reported by Reuters news agency.
“We have tens of millions of dollars of net in/out a day on average. Things were mostly average until this weekend, a few days ago,” Bankman-Fried wrote in a message to employees sent Tuesday morning. “In the last 72 hours, we have withdrawn about $6 billion net from FTX.”
Withdrawals at FTX.com are “effectively pausing,” he wrote, adding that this will be resolved “in the near future.”
FTX did not immediately respond to a request for comment on messages to employees.
Facing the crypto tycoon
Two of the most powerful tycoons 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. At the time, FTX became a growing rival to Binance, which dominates the crypto industry with over 120 million users.
Tensions between Zhao and Bankman-Fried have surfaced in recent days, with public disagreements taking place on Twitter.
FTX’s Bankman-Fried tweeted on Monday, a day after Zhao said Binance would sell our internal FTX tokens holdings without providing further details. He tagged Zhao in a later tweet, saying, “I would love it, @cz_binance, if we could work together for the ecosystem.”
‘Good reason to worry’
The deal comes after crypto exchange FTX’s internal token tumbled, losing a third of its value and dragging other significant digital assets along with it, amid pressure on financials. main of FTX.
Binance is currently under investigation by the US Department of Justice for possible violations of money laundering rules, Reuters reported last week.
A spokesman for the US Commodity Futures Trading Commission said the agency is monitoring the situation.
News of the deal initially spawned a massive amount of cryptocurrency, but those gains were quickly erased.
The FTX token was last traded at $5.33, down more than three-quarters on Tuesday.
Bitcoin, the largest digital token, fell 11%.
“People have good reason to worry about the security of their digital assets if one of the exchanges,” said Pascal Gauthier, CEO and President of crypto security firm Ledger. The world’s largest centralized exchange is in financial trouble. “It is time for an honest, industry-wide calculation of the importance of crypto custody.”
Cryptocurrency users raised a question on Twitter last week about FTX’s token after a reported by news site CoinDesk that Alameda Research, a commercial firm founded by Bankman-Fried, with close ties to FTX, appears to be on an unstable footing.
On Sunday, two days before the deal was announced, Zhao said his company would liquidate its FTX token holdings due to unspecified “recent revelations”.
Bankman-Fried initially said that the exchange was “fine” and that those concerns were “false rumors”.
In a tweet on Tuesday, he said his teams are working to resolve the withdrawal backlog: “This will solve the liquidity issue. This is one of the main reasons we asked Binance to join. “
“A *huge* thank you to CZ, Binance,” Bankman-Fried morerefers to Zhao, who is known by his initials.