The crypto industry has already been hit hard this year, and FTX’s recent misfortunes did not help it. Things were looking up, however, when rival cryptocurrency exchange Binance responded to its pleas for help and agreed to bail out the platform. The world’s largest crypto exchange signed a non-binding letter of intent (LOI) to “fully acquire” its rival crypto platform. FTX’s troubles, it seemed, were finally over.
But this was not to be, as Binance pulled a Elon Musk by changing its mind suddenly. Sending the prices of cryptocurrencies plunging to new lows for a second consecutive day, Binance informed that it was pulling out of the deal to acquire its ailing rival, leaving FTX to its fate as it flounders amidst a liquidity crunch.
The deal, thus lasted just over 24 hours before it folded and Binance tweeted that it was pulling out of the deal. In the tweet, it informed that due to due diligence, reports of mishandled customer funds, and regulatory scrutiny, it was staying away from the minefield that is FTX at the moment. In a thread, it continued, “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,” it concluded. It will be interesting to see whether Binance’s predictions for a stronger crypto ecosystem prove to be true, especially after the crypto industry has shed $2 trillion and has been beleaguered by turmoil this year. Binance’s action did little to tackle the instability in the crypto market and instead, sent shudders across the struggling crypto industry.
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 https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
FTX, which is currently facing a shortfall of up to $8 billion from withdrawal requests and needs emergency funding, was crucial in helping up-and-coming crypto firms find their footing in the market. This, along with Sam Bankman-Fried’s efforts, made FTX into a prominent, $32 billion company, and much of its progress and growth over the past two years were checked and reversed in a matter of days. In fact, it may now be on the verge of insolvency.
“I’m working, as quickly as I can, on next steps here. I wish I could give you all more clarity than I can. I completely understand if you want to step away, and don’t blame you at all for it,” Bankman-Fried wrote in an internal message, adding that Binance “had not previously informed us or expressed those reservations.”
This can be attributed to a public spat between Bankman-Fried and Binance CEO Changpeng Zhao, a report that indicated that much of the balance sheet of market making firm Alameda comprised of FTT (FTX’s native token), and Zhao’s threats to sell its holdings of FTT. Not only did this lead to a sharp rise in withdrawals – to the point where FTX suddenly halted processing withdrawals – but FTT also plunged more than 50% and closed trading at $2.26.
FTX’s murky future bodes ill for young crypto firms and investors alike, especially as it is under investigation by US regulators for how it handled customers’ deposits, and the steep falls of cryptos bear testament to that. With uncertainty and fears wrecking an increasingly volatile crypto economy, cryptocurrencies clocked new lows – Bitcoin dropped to $16,342 on Wednesday, while fellow crypto Ether dropped to $1,168.