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As The Cryptocurrency Market Collapses, Binance Intends To Purchase Rival FTX

As The Cryptocurrency Market Collapses, Binance Intends To Purchase Rival FTX
To help with a "liquidity crunch" at the rival exchange, cryptocurrency giant Binance signed a non-binding agreement on Tuesday to purchase FTX's non-U.S. unit. This stunning bailout has renewed investor concerns about cryptocurrencies.
Sam Bankman-Fried, the CEO of FTX, and Changpeng Zhao, the CEO of Binance, reached an agreement despite their high-profile rivalry as withdrawals totaling $6 billion were made from FTX in the 72 hours leading up to Tuesday morning.
Zhao, who had tweeted on Sunday that Binance would liquidate its holdings of the rival's token due to unspecified "recent revelations," played a part in the pressure put on FTX.
"It's scary to think that FTX, which is one of the largest crypto exchanges in the world, was bitten by liquidity concerns and Binance, their biggest rival, is coming to their rescue," said Dan Raju, CEO of Tradier, financial services provider and brokerage.
The 30-year-old billionaire Bankman-dramatic Fried's turnaround in fortunes is the latest emergency cryptocurrency rescue this year as investors fled riskier assets due to rising interest rates. From its peak, the cryptocurrency market has decreased by roughly two-thirds, reaching $1.07 trillion.
On hearing about the agreement on Tuesday, major cryptocurrencies initially rose, but those gains were quickly lost.
The price of FTX token, which grants owners discounts on FTX trading fees, was last $5.33 after falling by more than three-quarters. The largest digital token, bitcoin, was down 11%.
After FTX's shares dropped more than 10%, Coinbase Global Inc. reassured investors in a blog post that it had little exposure to the stock.
Forbes estimates Bankman-net Fried's worth at $16.6 billion; he previously claimed to have billions on hand to support faltering digital asset platforms. He disclosed a 7.6% ownership stake in Robinhood Markets Inc. in May, taking advantage of the trading app's declining share price.
According to people familiar with the situation, Tuesday's developments left FTX investors scrambling to understand what the deal with Binance means for their investment in FTX.
Bankman-Fried attempted to reassure FTX investors in a note to investors shared on Twitter and verified by a source with knowledge of the situation late on Tuesday. In the note, Bankman-Fried stated that "protecting shareholders is our highest priority," but added that specifics of the deal were "still being worked out." A request for comment from FTX was not immediately complied with.
The deal's terms were not disclosed by the parties, and its closure is still uncertain.
The biggest cryptocurrency exchange in the world, Binance, will carry out due diligence in the coming days as a preliminary step in purchasing According to Bankman-Fried, a California native who now resides in the Bahamas, where FTX is headquartered, the U.S. operations of Binance and FTX are not covered by the agreement.
The regulators' reaction to a deal between the two cryptocurrency exchanges is unclear.
Antitrust experts warned that American antitrust enforcers might insist on looking into the merger. If they believe it will harm American customers, they may file a lawsuit to stop it, according to Seth Bloom, an antitrust specialist at Bloom Strategic Counsel.
According to Reuters last week, the U.S. Justice Department is also looking into Binance for potential money-laundering violations. This is just one of many investigations this year into Binance's troubled past with financial regulatory compliance.
Reuters provided new information about Binance's tactics for avoiding regulation and the ongoing chaos in its compliance program last month. In response, Binance stated that it was working to raise industry standards and that it was aiming to enhance its capacity to identify fraudulent cryptocurrency activity.
The U.S. Commodity Futures Trading Commission is keeping an eye on the situation, according to a spokeswoman. FTC officials declined to offer any comments.
Zhao, also known by his initials CZ, and Bankman-Fried, two of the most influential businessmen in the cryptocurrency sector, have a tumultuous history together.
Binance invested in FTX, a much smaller exchange at the time, in late 2019 before selling its stake in July of that year. By that time, FTX had grown into a significant rival to Binance, the market leader in the cryptocurrency space with more than 120 million users.
Following a report by news website CoinDesk on a leaked balance sheet from Alameda Research, a trading firm founded by Bankman-Fried with close ties to FTX, tensions between Zhao and Bankman-Fried have recently surfaced, with a public disagreement playing out on Twitter.
The pace of withdrawals proved to be too much, however. "On an average day, we have tens of millions of dollars of net in/outflows," Bankman-Fried wrote in a message to staff sent on Tuesday morning, saying how that amount had run into billions.
An inquiry regarding FTX's response to the staff message went unanswered.
Binance's Zhao stated that FTX had "asked for our help" following "a significant liquidity crunch" in a tweet announcing the deal on Tuesday.
Bankman-Fried stated that his teams were attempting to reduce the backlog of withdrawals: "This will eliminate liquidity problems. One of the main reasons we invited Binance in is because of this."
"A *huge* thank you to CZ, Binance," Bankman-Fried wrote.

Christopher J. Mitchell

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