Cryptocurrency hard hit as Binance deal for FTX collapses

Tata

Nov 10, 2022

Bitcoin and other cryptocurrency prices saw a massive drop for a second straight day on Wednesday following Binance’s announcement that it was terminating its deal to buy struggling rival FTX Trading.

Binance had Tuesday reached a non-binding agreement to purchase FTX’s non-United States unit to help deal with a “liquidity crunch” at the rival exchange. The deal, however, was dependent on additional due diligence.

Binance said in a statement on Wednesday that the results of the due diligence raised serious issues that forced the company to withdraw from the deal.

“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said in a statement on Wednesday.

“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” the statement added.

Sam Bankman-Fried, the chief executive officer of FTX, informed staff in a Slack message that Reuters saw that Binance had not previously voiced concerns about the deal.

“We obviously just saw Binance’s statement,” Bankman-Fried said in the message. “They relayed that to the media first, not to us, and had not previously informed us or expressed those reservations.”

“I’ll keep fighting for those, as best as I can, as long as it’s correct for me to. I’m exploring all the options,” he said.

According to the Wall Street Journal, which cited persons familiar with the situation, Bankman-Fried also informed investors on Wednesday that the cryptocurrency exchange needs emergency liquidity to make up a shortfall of up to $8 billion due to withdrawal requests received in recent days.

Crypto prices adversely impacted

Cryptocurrency prices have been impacted by the FTX commotion. Bitcoin, the biggest cryptocurrency by market value, fell more than 12% to $16,084 on the day, according to CoinDesk, its lowest point since December 2020. While Ethereum was down 13%.

Earlier on Wednesday, Binance CEO Changpeng Zhao, – who goes by “CZ” in the crypto world – tweeted a letter addressing rumors about the Binance-FTX deal falling apart in which he claimed that the acquisition had no master plan.

“One, we did not master plan this or anything related to it. It was less than 24 hours ago that SBF called me,” Zhao said, referring to Bankman-Fried. “And before that, I had very little knowledge of the internal state of things at FTX. I could do some mental calculations with our revenues to guess theirs, but it would never be very accurate,” the letter read.

Zhao also stated that “FTX going down is not good for anyone in the industry” and that it was neither a victory nor a good deal for the company. He further urged investors not to trade FTT tokens and to ignore the prices.

In light of the recent decline in the value of crypto assets, FTX is the latest cryptocurrency startup to experience a liquidity crisis.

Investors and cryptocurrency traders alike are bewildered as the industry in general appear to be more volatile and unpredictable.

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