[Asia Economy Reporter Jeong Hyunjin] Binance, the world's largest cryptocurrency exchange, withdrew its announcement to acquire its liquidity-crisis-hit competitor FTX just one day after making it. The decision to urgently pursue the acquisition was followed by a belated confirmation that FTX's financial condition was worse than expected, and the fact that regulatory authorities had begun closely monitoring FTX appears to have influenced the withdrawal.
The cryptocurrency market, having lost hope that the situation would improve, was severely shaken, causing Bitcoin prices to plummet to the $15,000 range.
◆ Financial Black Hole and U.S. Regulatory Concerns Prompt Binance to Say "Beyond Our Capability"
On the 9th (local time), according to Bloomberg and The Wall Street Journal (WSJ), Binance announced in a statement that it would no longer proceed with the acquisition of FTX. Binance explained, "Initially, we hoped to provide liquidity to FTX customers, but this issue was beyond our control or ability to assist." Binance cited the results of due diligence and reports of U.S. regulatory investigations into FTX released that day as reasons for halting the acquisition.
Earlier, Binance CEO Zhao Changpeng had announced the day before that they would pursue acquiring FTX. FTX, which faced a sudden 'bank run' (a situation where customers withdraw coins all at once) due to rumors of financial instability in its affiliated companies, requested help, and Binance agreed to cooperate. Both parties had planned to conduct due diligence for the acquisition. However, the acquisition was canceled within just one day.
Before Binance's official statement, Bloomberg and WSJ reported, citing sources, that Binance was showing signs of withdrawing from the acquisition after reviewing FTX's corporate structure and books. Bloomberg reported that Binance executives quickly reviewed FTX's books and found a discrepancy of over $6 billion (approximately 8.2 trillion KRW) between FTX's liabilities and assets, confirming a financial 'black hole.'
Additionally, WSJ reported that Binance was surprised that while it has over 7,000 employees, FTX had fewer than 400 employees. Customer screening is necessary to prevent money laundering and to facilitate cryptocurrency trading based on that, but FTX was severely understaffed.
Furthermore, news emerged that U.S. regulatory agencies such as the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) had launched investigations into FTX's handling of customer funds and transactions with affiliated companies.
◆ Bitcoin Plummets Helplessly... "Unclear Who Will Save FTX in Dire Straits"
Concerns that such a situation could arise had already been voiced in the market since the acquisition announcement. The day before, 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 discretion to withdraw from the deal at any time." This raised the possibility that Binance's acquisition of FTX might fail, leading to a sharp drop in Bitcoin prices.
Later that day, CEO Zhao sent a memo to internal staff expressing that this agreement could not be seen as a 'victory' that would strengthen Binance's position, and he expressed concerns that FTX's collapse would severely undermine trust in the cryptocurrency industry and lead to intensified regulatory scrutiny. He also said, "There is no 'master plan' (with everything meticulously planned)," adding, "It has been less than 24 hours since FTX CEO Sam Bankman-Fried called me. Before that, I had very little knowledge of FTX's internal situation."
With Binance's withdrawal of support, hopes for a recovery in the cryptocurrency market vanished, and Bitcoin prices traded in the $15,000 range as of 7 a.m. Korean time that day, down more than 15% from the previous day. This is the lowest level since November 2020. After breaking below $20,000 the previous day, prices continued to fall helplessly.
Ethereum, the second-largest by market capitalization, also plunged more than 12%, falling below the $1,200 mark. FTT, the coin issued by FTX, the epicenter of the liquidity crisis, dropped 80% the previous day and fell another 60% that day. After Binance announced the withdrawal of the FTX acquisition, FTT's decline widened significantly within 24 hours from the 30% range. Solana, supported by FTX for trading, also fell more than 40%.
With Binance pulling back its helping hand, attention is focused on what will happen to FTX going forward. WSJ reported that CEO Bankman-Fried told investors that urgent funds were needed to cover up to $8 billion in withdrawal requests received over recent days. WSJ added that the timing of his contact with investors coincided with Binance's announcement to withdraw from the FTX acquisition.
CNBC reported, "It is unclear who will be the next buyer to acquire the troubled cryptocurrency exchange." Pascal Gauthier, CEO of Ledger, a cryptocurrency wallet manufacturer, told CNBC, "This incident shows that no one is 'too big to fail.' FTX seemed untouchable." Following the Terra-Luna incident in May and now FTX's crisis, the cryptocurrency industry is concerned about a potential domino collapse, CNBC quoted industry insiders as saying.
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