[Asia Economy Reporter Jeong Hyunjin] Binance, the world's largest cryptocurrency exchange, announced on the 8th (local time) that it will pursue the acquisition of its rival FTX, which is facing a liquidity crisis. Sam Bankman-Fried, CEO of FTX, who was hailed as the 'savior of the cryptocurrency industry,' ultimately bowed down after a sudden 'bank run' (a situation where customers withdraw coins all at once) occurred due to rumors of financial instability in FTX's affiliated companies.
Despite the agreement between Binance and FTX, concerns remain in the market that the deal could fall through before the actual acquisition is completed due to remaining procedures such as due diligence, causing Bitcoin prices to plunge sharply.
◆ Liquidity Crisis Due to Rumors of Financial Instability in Affiliated Companies... FTX Bowed Down
Binance CEO Zhao Changpeng posted on Twitter that he signed a letter of intent (LOI) to acquire FTX and will proceed with due diligence. Binance stated that this deal was made at FTX's request for help amid its liquidity crisis. Binance plans to acquire FTX's business outside the United States.
FTX CEO Bankman-Fried also confirmed via Twitter that they agreed on a strategic deal with Binance. He emphasized, "Our team is working to resolve the withdrawal balance issue, which will solve the liquidity crisis. All assets will be handled on a one-to-one basis," adding, "This is one of the reasons we asked Binance to participate."
Neither CEO disclosed specific acquisition terms, including the price.
This incident began when FTX faced a liquidity crisis due to rumors of financial instability in its affiliated companies, triggering a coin withdrawal situation. According to Bloomberg and others, last week, CoinDesk, a specialized media outlet in the coin industry, obtained internal documents from Alameda Research, FTX's sister company, reporting that "a significant portion of Alameda's balance sheet is filled with FTT, a token issued by FTX that offers fee discounts to exchange users." This structure, where affiliated companies purchase and hold FTT issued by FTX, means that if the FTT price falls, both companies could simultaneously face financial difficulties.
CEO Bankman-Fried denied the rumors, saying, "Competitors are creating false rumors." However, decisively on the 6th, CEO Zhao announced that he would sell all $2.1 billion (about 2.9 trillion KRW) worth of FTT he held as part of risk management learned from the Terra-Luna incident. Following this, panicked investors rushed to withdraw funds, and FTX eventually took measures to block withdrawals on its platform that morning.
◆ Concerns Over Deal Falling Through... Bitcoin Hits Lowest Since November 2020
After CEOs Zhao and Bankman-Fried announced the acquisition news, the Bitcoin market fluctuated. According to cryptocurrency information site CoinMarketCap, Bitcoin was trading around $18,000 as of 8:20 a.m. Korean time. CNBC reported that Bitcoin prices briefly dropped to $17,300, marking the lowest level since November 2020. Besides Bitcoin, Ethereum, the second-largest coin by market cap, and Solana, a coin mainly used on the FTX exchange, also plunged about 20%. FTX's own issued token, FTT, plummeted by as much as 80% that day.
This agreement represents Binance extending a lifeline to FTX amid its liquidity crisis, but the market remains concerned about the likelihood of the acquisition actually being completed. CEO Zhao described the agreement as a "non-binding letter of intent," stating, "We are assessing the situation in real-time in a very dynamic environment. Binance reserves the right to withdraw from the deal at any time." Bloomberg reported that "Zhao's tweet on this matter is making market observers uneasy."
CNBC also emphasized that "this deal only affects FTX and Binance's businesses outside the United States. CEO Bankman-Fried tweeted that the U.S. branches of each company are not affected," and both CEOs mentioned that due diligence remains before finalizing the agreement.
Until early this year, FTX was valued at $32 billion and had secured investors such as BlackRock, the Ontario Teachers' Pension Plan (OTPP) of Canada, and SoftBank. It was regarded as a well-run cryptocurrency exchange centered around CEO Bankman-Fried, who maintained close ties with U.S. political circles. Bankman-Fried, who has operated FTX since 2019, was estimated to have assets worth $24 billion as recently as six months ago. In May, he was called a savior in the industry for injecting funds into the cryptocurrency sector shaken by the Terra-Luna incident.
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