The world’s biggest cryptocurrency exchange Binance has announced that it had rescinded its decision to acquire rival exchange FTX, leaving the company on a brink of collapse. This announcement follows a day after Binance’s CEO announced that the company had signed a letter of intent and is set to acquire its biggest rival FTX at an undisclosed amount. The acquisition would have rescued FTX from its ongoing liquidity crisis.
“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,” Binance tweeted on Wednesday.
On Monday, Binance CEO Chanpeng Zhao agreed to step in after FTX’s Sam Bankman-Fried revealed the company’s situation. According to sources, FTX’s CEO was scrambling to secure funding from venture capitalists and other investors before turning to Binance.
According to Binance’s CEO Changpeng Zhao, the company decided to acquire FTX after its CEO, Sam Bankman-Fried asked Binance for help. “To protect users, we signed a non-binding LOI, intending to fully acquire FTX and help cover the liquidity crunch. We will be conducting a full DD in the coming days,” Changpeng Zhao shared in a tweet. Binance cited reports of “mishandled customer funds and alleged U.S. agency investigations” as the reason for its latest decision.
According to people familiar with the matter, FTX’s CEO told investors that the company is facing a shortfall of up to $8 billion from withdrawal requests and therefore needs emergency funding.
On Tuesday, Sam Bankman-Fried revealed that withdrawals demanded by customers had amounted to $6 billion. He also went ahead to take down Monday tweets that indicated that the exchange had enough assets to take care of clients’ holdings.
In a meme, Changpeng Zhao told Binance employees that he did not master plan FTX’s collapse, adding that FTX’s dilemma is “not good for anyone in the industry” and that employees should not see it as a win for Binance. He also warned employees about trading FTT tokens while the ordeal is on. “If you have a bag, you have a bag. DO NOT buy or sell,” he warned.
Binance’s full statement on its latest decision reads; “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. 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. Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market. As regulatory frameworks are developed and as the industry continues to evolve toward greater decentralization, the ecosystem will grow stronger.”
Between Monday and Tuesday, FTX’s token FTT lost 80 percent of its value, falling to $5 and losing more than $2 billion in value in a day. On Wednesday, FTT fell to around $2.30, bringing the total value of circulating tokens to $308 million. Other cryptocurrencies including Binance and Ether, have dropped on the ordeal.