Binance VS FTX: Aquisition Finalised After Emergency Buyout November 20202

2 min read

On Tuesday, cryptocurrency billionaire Changpeng “CZ” Zhao made a startling effort to seize control of, the organization unexpectedly in financial crisis and run by his main opponent and former student Sam Bankman-Fried. Zhao’s Binance Holdings sent the letter of intent to purchase after their heated dispute, in which Zhao deliberately undermined trust in FTX’s finances and encouraged users to leave the three-year-old exchange, spilled into the open. Assets on FTX were “OK,” according to a tweet from Bankman-Fried a day before an agreement was reached.

Such moves would be prohibited on Wall Street but aren’t uncommon in this rough-and-tumble corner of finance, which remains largely devoid of regulation about a decade year after its founding. Ironically, it was Bankman-Fried who was pushing for greater regulation, something that Zhao has largely opposed.

Terms of the emergency buyout were scant, helping to send prices of cryptocurrencies tumbling after a brief rebound. Binance said the agreement came after “a significant liquidity crunch” befell FTX and the firm asked for its help. The takeover is a startling twist for FTX, whose 30-year-old founder had emerged in recent years as the ready-for-prime-time face of crypto and amassed a fortune approaching $20 billion.

The acquisition will reshape the more than $1 trillion industry that is already dealing with a prolonged market downturn. The two founders made the announcement on Twitter concurrently. “To protect users, we signed a non-binding LOI, intending to fully acquire and help cover the liquidity crunch,” Zhao said in a tweet.

FTX was hit with about $6 billion in withdrawals in the 72 hours before Tuesday morning, Reuters reported, citing a message sent to staff by Bankman-Fried.

“Our teams are working on clearing out the withdrawal backlog,” Bankman-Fried said on Twitter. “This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in.”

Sam Bankman-Fried, founder and chief executive officer of FTX

Photographer: Jeenah Moon/Bloomberg

It’s fast comeuppance for Bankman Fried, no stranger to bare-knuckled exploits in his role as founder of Alameda Research, the crypto trading firm whose fate was left unmentioned in the tweets announcing the bailout. The former Jane Street trader has been unapologetic about Alameda’s willingness to pounce on profit opportunities in the wild-west crypto space, framing it as part of a long-term plan to give away billions to charity.

Bitcoin swung between gains and losses, dropped below $19,000 for the first time since Oct. 21. BNB, the native token of the Binance blockchain, did the same and was down about 5% after initially jumping as much as 15%.

For the crypto industry broadly, FTX’s demise is another example of a once-towering player laid low when a crisis of confidence forced a run on its assets. Like others before it, including lenders Celsius Networks and hedge fund Three Arrows Capital, reserves proved inadequate when market sentiment turned against it, even as top executives said nothing was amiss.

The tension between Bankman-Fried and Zhao has been brewing almost since the start. Back in 2019, Binance invested into FTX, then a derivatives exchange. The next year, Binance launched its own crypto derivatives, quickly becoming the leader in this space.

Tensions rose as the two companies increasingly had been seen as different by regulators. Bankman-Fried was testifying in Congress, while Binance was said to be facing regulatory probes around the world and emphasized that it’s not headquartered anywhere.

The two companies have also been competing for assets, with both bidding for assets of Voyager Digital. FTX won the auction of Voyager.

The drama reached fever pitch on Sunday, when Zhao announced he would sell all of his FTT holdings, the native token of FTX exchange, worth $529 million at the time due to “recent revelations that came to light.” The tweet followed a story from CoinDesk saying that Alameda Research, a trading house owned by Bankman-Fried, had a lot of its assets in FTT token. FTT tumbled by more than 70% to around $6, according to prices on CoinMarketCap.

Binance is the largest crypto exchange by far, with trading volume of about $40 billion so far today. FTX is second in spot trading, with volume of about $4 billion, according to CoinMarketCap data. CoinMarketCap is owned by Binance.

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