Binance, the largest crypto exchange by trading volume, said it would buy FTX as its smaller rival struggles amid speculation over its finances. The two giant crypto exchanges have signed a non-binding letter of intent
Megadeal of Crypto Exchanges
At the moment, the cost of the acquisition is unclear. Currently, Binance has 30 million users and a $37 billion daily trading volume, while FTX has 5 million users and a $4.24 billion daily trading volume. Binance.US and FTX US, which are separate companies, will not be affected by the deal.
Binance CEO Changpeng “CZ” Zhao wrote on Twitter on November 8: ”This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire http://FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days.”
“Things have come full circle, and FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.),” FTX’s Sam Bankman-Fried tweeted.
The due diligence process will begin within the next few days. The deal comes just a day after Binance decided to sell its entire FTT tokens (the native tokens of FTX) following rumors surrounding the insolvency of FTX.
Market Jumps Hearing The News
Following the insolvency news yesterday, the market saw massive sell-offs, with FTT tokens falling over 30% on the week. There were also losses of double digits in other major cryptocurrencies, such as Dogecoin and Solana. However, after hearing about the Binance-FTX deal, the crypto market recovered a bit, with FTT rising 25% over the last hour, and Binance’s BNB token rising 8%, according to CoinGecko.
How the Binance-FTX deal unfolded
Not so long ago, FTX CEO and founder Sam Bankman-Fried was offering to buy up failing crypto companies for the good of the industry. Indeed, FTX.US recently won an auction to buy the assets of bankrupt crypto lender Voyager. Now, it seems that we instead need to add FTX to the list of failing crypto businesses.
It all started last week when a CoinDesk article sparked concern that Bankman-Fried’s trading firm, Alameda Research, was overly reliant on FTX’s native token, FTT. This raised fears that Bankman Fried’s crypto empire might be built on shaky foundations. Still smarting after the collapse of the Terra ecosystem, FTT holders — including Binance — acted to protect themselves and sell their holdings. Things came to a head Tuesday, Nov. 8, when news reports suggested FTX had stopped processing withdrawals.
Hours later, Binance announced it would buy FTX. “This afternoon, FTX asked for our help,” tweeted CZ. “There is a significant liquidity crunch.”
Bankman-Fried echoed this. “Things have come full circle, and http://FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for http://FTX.com (pending DD etc.),” he said. Bankman-Fried also stressed that customers would be protected.
Binance will still need to do its due diligence, but in principle, the world’s biggest crypto exchange is about to get even bigger. Binance’s native token Binance Coin (BNB) initially rose sharply on news of the deal, but has since fallen. Many top cryptos have fallen over 10% in the past 24 hours as FTX’s woes shook investor confidence in the crypto market overall.
What it means for customers
In theory, the deal won’t impact US customers as FTX.US and Binance.US are separate entities. Bankman-Fried said that FTX.US’s withdrawals are “operating normally” and that the exchange is “fully backed 1:1.”
However, if you are an FTX.US customer, you might consider moving your crypto funds to an external crypto wallet or another exchange. When other platforms struggled earlier this year, leaders repeatedly reassured clients that their funds were safe right up until the point that they froze withdrawals. At that point, it was too late.
If you are an international FTX customer, there’s a good chance your funds will be safe — as long as the Binance deal goes through. But there are no guarantees. I was able to withdraw some funds from FTX today, but other customers had problems earlier in the day. If you’re not convinced by Bankman-Fried’s assurance that your fund will be protected, take steps now to at least try to withdraw your crypto.
Wanting to keep your cryptocurrency on the exchange where you bought it is understandable, especially if you’re new to the crypto world. You can often gain higher staking rewards, you don’t need to pay withdrawal fees, and you don’t have to navigate the sometimes challenging path of opening your own crypto wallet.
However, one of the powerful aspects of cryptocurrency is that you don’t need to rely on any centralized bodies. There is a steeper learning curve and there are risks associated with becoming your own bank. There’s no handy “forgotten password” button for a start. But if you compare keeping assets on a crypto exchange that’s struggling with liquidity versus the challenges of managing a wallet, a crypto wallet could be the lesser of two evils.
Here’s the company’s full statement:
“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.”