Crypto Exchange FTX Knocking On The Door Of Bankruptcy After Binance Backs Out Of Deal

It's been a tumultuous few days in the cryptocurrency world. If the already lacklustre year involving over $2 trillion market value loss for cryptocurrency wasn¡¯t enough, the whole fiasco around the potential deal between Binance and FTX has worsened the pain for crypto investors.

The cryptocurrency market has been left bleeding amid the world's largest crypto exchange Binance suddenly proposing to acquire rival FTX and then quickly backing out of it.

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.

¡ª Binance (@binance) November 9, 2022

bitoincist

Earlier this week, it was on Tuesday when Binance seemed set on acquiring troubled rival FTX.com. Then on Wednesday, Binance walked away from the deal citing problems with FTX¡¯s finances as well as potential regulatory investigations. Its decision to walk away deepened the ongoing crypto bloodbath, with Bitcoin tumbling to its lowest level in two years.

What Exactly Happened?

Over the weekend, Binance CEO Changpeng Zhao tweeted that Binance would be liquidating its holdings of a token known as FTT, which is the native token issued by FTX.

The tweet followed a story from crypto news outlet CoinDesk saying that Alameda Research, a trading house owned by FTX¡¯s founder and 'crypto Robinhood' Bankman-Fried had a lot of its assets in FTT token.

That fuelled deeper concerns about FTX¡¯s financial health and crypto investors began to panic and withdraw their money, making the crypto market bleed further. The FTT token thus plunged. Just a day before reaching any deal could be struck, FTX CEO Bankman-Fried had said on Twitter that assets on FTX were ¡°fine¡± and that ¡°a competitor is trying to go after us with false rumours.¡±

On Tuesday, Binance CEO announced a potential takeover of FTX, with due diligence to be conducted ¡°in the coming days.¡±

Bloomberg

Then later on Wednesday, Binance said it was pulling out of the deal saying its rival¡¯s issues were ¡°beyond our control or ability to help.¡± As per a Bloomberg report, Binance executives had discovered a gap between FTX¡¯s liabilities and assets that may amount to more than $6 billion.

In the spirit of transparency, might as well share the actual note, sent to all Binance team globally a few hours ago.https://t.co/IUNkPcLC8T pic.twitter.com/XGlIJB7EV5

¡ª CZ ? Binance (@cz_binance) November 9, 2022

After Binance backed out, Bankman-Fried told FTX.com investors on Wednesday that the company needs a cash injection, or else it would need to file for bankruptcy, as per the Bloomberg report.

He told FTX employees "I'm deeply sorry that we got into this place, and for my role in it. That's on me, and me alone, and it sucks, and I'm sorry, not that it makes it any better."

At present, US regulators are reportedly investigating whether FTX properly handled customer funds, as well as its relationship with other parts of Bankman-Fried¡¯s crypto empire, including his trading house Alameda Research.

For the uninitiated, Binance had earlier invested in FTX back in 2019. In 2021, it sold its stake in it. And now, Binance taking a U-turn in the deal has injected a lot of uncertainty amid crypto investors who are worried about the future of the industry.

Signalling the bloodbath amid panic selling is FTT token¡¯s collapse of more than 40% on Wednesday, following a tumble of more than 70% which was done on Tuesday, as per the report. But it's not only about FTT. Just about every digital coin is struggling.

Bitcoin fell as much as 15% to $15,987 on Wednesday,as per the report. This is its level since November 2020.

Also Read: Binance Donates Crypto Worth $2.5Million For Ukraine

The Road Ahead For FTX

While it's still unclear what lies ahead, clients--who have already pulled out $430 million worth of Bitcoin in the space of just four days-- are reportedly worried about the future of the crypto exchange. FTX CEO too has already lost his billionaire status in the past two days before which his net worth was over $16 billion.

As far as investors are concerned, FTX CEO Bankman had earlier this week re-assured FTX investors, saying that "protecting shareholders is our highest priority". It remains to be seen whether the crypto exchange firm manages to get the much-needed urgent funding after Binance's quick u-turn. Until then, it's more or less a wait-and-watch scenario for both the firm and its investors.

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