Binance entered into a non-binding agreement to purchase FTX Trading’s non-US unit on Tuesday to assist them in covering a liquidity crunch. The proposed deal between the two trading platforms was followed by speculations about FTX Trading’s financial health for a week. This resulted in $6 billion in withdrawals within 72 before the deal, raising concerns about its financial condition.
The two trading platforms did not disclose their agreement terms, but Binance released a statement saying they had significant concerns after a review, forcing them to exit the deal.
In their statement, they said they entered the deal hoping to support FTX’s clients provide liquidity, but the issues they found with the platform are beyond their control and ability to help.Bankman-Fried struggled to raise money on Monday night from venture capitalists from other investors before ha approached Binance. Zhao, Binance’s CEO, initially wanted to assist FTX but discovered mishandled customer funds plus alleged US agency investigations in the organization.
Many customers fled the exchange because they doubted if FTX had enough capital to pay out its investors. And of course the knock on effect is a drop in currency values across the market, reducing the spend value of crypto casino player’s wallets.
This event comes as a shock to many people because people regarded Bankman-Fried as a crypto savior because he helped several crypto companies survive financial trouble earlier this year.
Some uncovered documents revealed that FTX had its finances intertwined with those of Alameda research, a trading and investment company by SBF. Although they were supposed to be separate companies, Alameda held a considerable amount of their balance sheet in FTT, FTX’s token.
The token was liquid, and the two companies owned the majority of the circulating token, and selling them would mean crashing the token’s price. This has left many investors wondering whether Alameda Research’s balance sheet had worthless FTT tokens whose value was less than FTX’s liabilities, making FTX insolvent.
Wall Street Journal also claims that Bankman-Fried requested $8 billion from investors to pay out withdrawal requests from investors, further illustrating how bad the company’s financial situation is.
In addition to backing out of the deal, Zhao announced that they would be unwinding their FTT token position over a few months. Binance was among FTX’s earliest and most significant investors, meaning they had many FTT tokens and a lot of power to affect the price.
This announcement made other FTT holders panic-sell their tokens and rush to withdraw their funds from FTX. This led FTX to eventually pause withdrawals on Tuesday morning, causing more chaos in the market.
This discovery has left FTX under heavy investigation by United States Authorities for the way it handled investor’s deposits.
Effects On Major Cryptocurrencies
Bitcoin has been the leading cryptocurrency in the market for years, but it experienced a drop in price to $15,840. This is over 13% lower than its previous price and the lowest since November 2020. Ethereum, another primary cryptocurrency, also suffered a 13% drop, hitting its lowest price since July 2022.
This uncertainty also affected smaller tokens like FTT, a token tied to FTX, which experienced a plunge of over 80%. Its current price is about $2.50, although it was worth ten times more when the week started. This made its market cap drop below $600 million from nearly $3 million at the beginning of the week.
Although this effect has mainly affected crypto tokens, it has also affected publicly traded exchange shares exposed to cryptocurrency. Robinhood shares, for example, went down around 14%, and Coinbase shares plunged approximately 10%.
While this failed deal does not affect FTX’s US entity, it will significantly impact the industry, with many investors and crypto buyers having less trust in other centralized platforms.
