Binance is pulling out of the deal to buy FTX. On Tuesday 8 November, Binance signed a letter of intention to acquire the failing crypto exchange, although at the time it said the agreement was subject to a due diligence process.
But as the contagion from the collapse of the FTX leads to a bloodbath in crypto asset prices, the quality of the FTX balance sheet and that of its sister company Alameda is likely to have deteriorated sharply.
Binance: ‘FTX issues are beyond our ability to help’
As reported by Bloomberg the statement said: “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.”
FTX was the second-largest exchange in the crypto space and has been brought low by a run on deposits as customers fled the exchange because of fears that it might be insolvent.
That become a self-fulfilling prophecy that means the company could soon be seeking protection from its creditors.
Bellwether crypto asset bitcoin fell below $16,000 as the news spread, down 135 in the past 24 hours.
FTX Token (FTT) is down 55% after dropping 80% yesterday and is currently trading at $2.4.
Ethereum, the second largest asset by market cap, threatens to fall below $1,000, and is currently priced at $1,107.
Binance founder and CEO tweeted a moment ago: “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.”
As Crypto prices bleed, market participants ask, were there shady practices going on at FTX?
Hinting at what had gone wrong at FTX, Binance boss CZ tweeted yesterday that there were two main lessons to be drawn from FTX’s demise: “Never use a token you created as collateral and secondly, don’t borrow if you run a crypto business – don’t use capital ‘efficiently’. Have a large reserve.”
Binance has made it known that it will be publishing a detailed breakdown of the assets on its balance sheet – or proof or reserves as it puts it.
The turnaround in the fortunes of FTX founder Sam Bankman-Fried have been astounding.
Just months ago his companies were buying up distressed assets across the cryptosphere.
From Celsius to Voyager, FTX appeared on the scene as the white knight riding to the rescue.
FTX was even expanding into TradFi, with an investment in online brokerage Robinhood and attempts to persuade Commodity Futures Trading Commission to adopt its innovations in crypto futures in the regulated markets.
FTX is in the crosshairs of the CFTC
But the spectacular implosion of FTX, which was previously assumed to be one of the strongest financial outfits in crypto, has grabbed the attention of the CFTC in a way that spells further trouble for SBF and the leadership team at FTX and associated companies.
CFTC Commissioner Kristin Johnson said the FTX debacle shows the need for more oversight of crypto, in an interview with Bloomberg TV
Now there are fears that FTX has been lending out client funds, a practice that is banned in the regulated brokerage sphere.
The Binance statement also refers to “mishandled customer funds and alleged US agency investigations” as reasons why it abandoned the deal, according to comments provided to Coindesk.
A huge spike in trading volumes on spot and futures markets speaks to the volatility that has taken hold in crypto markets.
One example of that is seen in the regulated fund and futures markets.
49 million shares of the ProShares Bitcoin Strategy ETF (BITO), which launched a year ago, saw volumes 64% greater than the record volumes witnessed at its launch in October last year. BITO invests in CME bitcoin futures.
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