Binance is backing out of its plans to acquire FTX, the company said Wednesday, leaving Sam Bankman-Fried’s crypto empire on the verge of collapse.
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
The reversal comes one day after Binance CEO Changpeng Zhao announced that the world’s largest cryptocurrency firm had reached a non-binding deal to buy FTX’s non-U.S. businesses for an undisclosed amount, rescuing the company from a liquidity crisis. Earlier this year, FTX was valued at $32 billion by private investors.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity,” Binance said in a tweet on Wednesday. “But the issues are beyond our control or ability to help.”
On Monday night, facing a liquidity crunch, Bankman-Fried was scrambling to raise money from venture capitalists and other investors before he went to Binance, according to sources with knowledge of the matter. Zhao initially agreed to step in, but his company quickly changed course, citing reports of “mishandled customer funds and alleged U.S. agency investigations.”
FTX had been struggling with a surge in withdrawals that caused a “liquidity crunch”.
Concerns about FTX’s financial health reportedly triggered $6bn (£5.2bn) of withdrawals in just three days.
The Reuters news agency reported on Wednesday that the US Securities and Exchange Commission (SEC) was investigating FTX’s handling of customer funds and its crypto-lending activities.
The markets regulator was examining whether the platform had followed securities laws about keeping customer assets separate and whether it had traded against customers.
It’s unclear who is next in line to buy the beleaguered crypto exchange. Bankman-Fried told investors that the company is facing a shortfall of up to $8 billion from withdrawal requests and needs emergency funding, according to a person familiar with the matter.
April Joyner, a correspondent at Business Insider in New York, told the BBC’s Today programme the problems at FTX could be quite serious.
“If FTX were to go under a lot of people could potentially lose their money depending on what’s going on there,” she said.
“It’s also led to a lot of turmoil on crypto markets – we’ve seen prices of Bitcoin, Etherium, etc fall and so there’s a lot of distress and worries about the crypto markets right now.”
There is a growing list of cryptocurrency businesses that have failed because of a lack of cash reserves.