Updated Nov 9, 2022 - Economy

Crypto exchange Binance walks away from acquiring rival FTX

Illustration of a cane pulling a pixelated coin off stage.

Illustration: Shoshana Gordon/Axios

A day after having agreed to acquire rival crypto exchange FTX, Binance announced on Wednesday it was nixing the deal, stating that the company's "issues are beyond our control or ability to help."

Why it matters: FTX went to Binance for help in an 11th hour bid to secure much needed capital, after a flood of customer withdrawal requests began over the weekend, undermining its solvency.

  • The crypto world’s latest high profile meltdown has reverberated across markets, with digital token prices collapsing amid fears of contagion.

What they're saying:

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.
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.
Every time a major player in an industry fails, retail consumers will suffer. 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.
As regulatory frameworks are developed and as the industry continues to evolve toward greater decentralization, the ecosystem will grow stronger.
— Binance spokesperson

Between the lines: Binance's deal was always tentative and subject to due diligence, given the rushed nature of the deal and the lack of clarity around just how much capital FTX needs. Also muddying the waters were the unknown liabilities Binance would take on if it proceeds.

  • "The cost benefit analysis started to change rapidly," a source close to the situation tells Axios.

Binance found that FTX would probably need upwards of $7 billion once it was able to look at its financials. It also got wind of regulatory investigations into FTX regarding its use of its FTT token and customer funds.

  • "Once we got into the deal it got very complicated...we were completely unable to figure out what’s what," the source added, speaking about the due diligence process.
  • The source also says that last night, Binance CEO Changpeng Zhao expressed to FTX that the team’s findings weren’t going well. That disputed an earlier claim by FTX CEO Sam Bankman-Fried to his employees that the former didn't share any concerns about the deal with the company before announcing publicly it was walking away, as reported by Reuters.

By the numbers: Bitcoin and other major cryptocurrencies have been routed by FTX’s fall from grace. The leading digital token is pinned below $16,000 as of this writing, down from just above $20,000 on Nov. 1.

  • FTT, FTX's native token which was at the center of its liquidity crunch, has plunged to $2.74, per Coingecko, following news of Binance nixing the deal.

The big question: What will happen to FTX US, the exchange's American unit, which the company maintains is isolated from the troubles.

  • Binance, for one, is not interested in the business, the source tells Axios.
  • FTX did not immediately respond to Axios' request for comment.
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