Just one day after Binance said it would acquire major competitor FTX, the crypto exchange has backflipped on its offer after taking a closer look at FTX’s finances.
“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,” Binance said in a tweet this morning.
“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,” Binance added.
In his announcement of the takeover, Binance CEO Changpeng Zhao (CZ) initially warned investors that the acquisition of FTX ultimately depended on performing further “due diligence”.
Going from bad to worse
Following the shock announcement that Binance would walk away from the takeover deal, private conversations between FTX CEO Sam Bankman Fried and major investors were leaked to the Wall Street Journal.
According to WSJ, the private calls reveal that SBF is currently seeking ‘emergency funding’ for a whopping US$8 billion dollars to help cover the shortfall on its books caused by the mass of sudden withdrawals from FTX. Investors have been scrambling to withdraw their funds from the now-beleaguered exchange, with customers removing more than US$1.2 billion on Monday alone.
Making matters worse, Bloomberg reports that FTX is now facing investigation from the Securities and Exchange Commissions (SEC) for potentially “mishandling customer funds”. The SEC will join forces with the Commodity Futures Trading Commission (CFTC) to probe deeper into the other elements of Bankman-Fried’s crypto operations, including FTX’s sister hedge fund Alameda Research.
Sam Bankman-Fried started this week with an estimated net worth of a little more than US$15 billion according to the Bloomberg Billionaire Index. His most valuable assets were directly linked to FTX and Alameda Research, being largely tied up in the exchange’s native token FTT.
The Billionaire Index now preemptively values FTX and Alameda at just US$1, meaning that SBF is now worth less than US$1 billion, which Bloomberg claims is the “biggest one-day collapse ever among billionaires”.
At the time of writing FTT is down a cringe-inducing 61% in the last 24 hours, changing hands for just US$2.15. Five days ago the token was trading for US$25 and commanded a market cap of US$4 billion.
The revelation that FTX could soon be facing insolvency has seen the crypto market go into a state of panic. Bitcoin (BTC) has plummeted more than 15% in the last 12 hours, dropping to a price of US$15,660 at the time writing, its lowest point since November 2020. Ethereum (ETH), the second largest cryptocurrency by market cap has followed Bitcoin into the void, down more than 18% in the last 24 hours.