Hours after its proposal to acquire FTX, one of the world’s largest crypto exchanges by volume, Binance, has announced that it is backing out of the deal.
The decision was reached after new findings were made about FTX’s state of finance, which revealed that it’s far worse than Binance had thought. Sources had told CoinDesk that FTX’s loan commitments raised concerns among Binance’s top brass. Binance also found out that FTX has “mishandled customer funds” leading to “alleged U.S. agency investigations.”
Binance had on Tuesday signed a letter of intent to acquire FTX, a rival crypto exchange with financial trouble, in a move that appeared more like a bailout.
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But a statement issued Wednesday, Binance said that the plan has crumbled and it would no longer proceed with 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 https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
“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 said.
“As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged U.S. agency investigations, we have decided that we will not pursue the potential acquisition of [FTX],” Binance said in a tweet.
“Every time a major player in an industry fails, retail consumers will suffer,” Binance continued. “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.”
The development has added further pressure on the troubled crypto market, erasing more than $200 billion from investors’ wallets as bitcoin plummets as much as $16,500 as at Wednesday afternoon.
FTX CEO Bankman-Fried scrambled to raise fund from venture capitalists and other investors before going to Binance. He told investors that the exchange faces liquidity shortfall of up to $8 billion and needs emergency funding to meet withdrawal requests.
Binance CEO Changpeng Zhao tweeted yesterday that FTX “going down is not good for anyone in the industry.”
The resulting degeneration of crypto crash upholds his statement. With bitcoin and altcoins swinging down, 13% on Tuesday and 15% on Wednesday, the market’s turmoil is expected to deepen.
One of Silicon Valley’s most prominent VC firms, Sequoia Capital, has marked down its $213.5 million FTX investment to $0.
Crypto cheerleaders are now concerned that after this, institutional investors would never bet another dime on crypto. With blames being thrown around regarding what went wrong, experts believe that the crypto industry would have come off better if it’s regulated.
The full statement from Binance
“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.”