[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 revealed that FTX's financial condition was worse than expected, and regulatory authorities had begun closely monitoring FTX, which 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. Sam Bankman-Fried, CEO of FTX, who is facing the worst crisis, warned of a funding shortfall of about $8 billion (approximately 10.9 trillion KRW), raising concerns in the market about FTX's potential bankruptcy.
◆ Financial Black Hole and US Regulatory Concerns Led 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 US regulatory investigations into FTX as reasons for halting the acquisition.
Previously, Binance CEO Zhao Changpeng had announced the intention to acquire FTX the day before. FTX, facing a sudden 'bank run' (a situation where customers withdraw coins en masse) 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 considering 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 between FTX's liabilities and assets, confirming a financial 'black hole.'
Additionally, WSJ reported that Binance was surprised that while it employs over 7,000 staff, FTX had fewer than 400 employees. Customer screening is necessary to prevent money laundering and to facilitate cryptocurrency trading based on this, but FTX was severely understaffed.
Furthermore, news emerged that US regulatory bodies 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 about such developments had already surfaced in the market from the time of the acquisition announcement. The previous day, 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." This raised the possibility that Binance's acquisition of FTX might fall through, leading to a sharp drop in Bitcoin prices.
Later that day, CEO Zhao sent a memo to internal staff expressing that the agreement could not be seen as a 'win' that would strengthen Binance's position. He expressed concerns that FTX's collapse would seriously undermine trust in the cryptocurrency industry and lead to intensified regulatory scrutiny. He also said, "There is no 'master plan' (with everything meticulously planned). Sam Bankman-Fried, FTX CEO, called less than 24 hours ago. Before that, we had little knowledge of FTX's internal situation."
With Binance's withdrawal of the acquisition, hopes for a recovery in the cryptocurrency market vanished, and Bitcoin prices traded in the late $15,000 range as of 9:10 AM Korean time, down 15% from the previous day. This is the lowest level since November 2020. After breaking below $20,000 the previous day, prices have been falling helplessly.
Ethereum, ranked second in market capitalization, also plunged over 16%, barely holding the $1,100 level. FTT, the coin issued by FTX, the epicenter of the liquidity crisis, fell over 80% the previous day and dropped more than 60% again on this 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, fell more than 40%.
◆ Bankman-Fried "Very Regretful"... Working to Cover $8 Billion Funding Shortfall
With Binance pulling back its support, attention is focused on what will happen to FTX going forward. According to WSJ, Bankman-Fried sent a message to company employees after Binance's statement, saying, "I just saw Binance's statement. They communicated this to the media before us and did not express or inform us of such reservations beforehand." He added that they are doing what they can to protect customers, employees, and investors, expressing, "I deeply regret being in this situation. I am sorry."
WSJ and Bloomberg, citing sources, reported that Bankman-Fried told investors he urgently needs funds to cover up to $8 billion due to withdrawal requests received in recent days. WSJ added that he contacted investors at the time Binance announced it would withdraw from the FTX acquisition.
FTX is reportedly attempting a bailout. Bankman-Fried told investors he wants to secure funding through up to $4 billion in stock issuance, according to WSJ. Bloomberg reported, "Bankman-Fried told investors that without capital injection, the company would have to file for bankruptcy."
Among experts, there are concerns that if the FTX crisis worsens, it could become a replay of the Terra-Luna incident that caused the cryptocurrency market collapse in May. At that time, Terraform Labs, led by CEO Kwon Do-hyung, issued TerraUSD and Luna, which experienced a 'death spiral' phenomenon where prices plummeted simultaneously due to problems in the trading algorithm. This incident subsequently led to the chain bankruptcies of Singapore-based crypto hedge fund Three Arrows Capital and US crypto lenders Voyager Digital and Celsius.
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 domino collapse, CNBC quoted industry insiders as saying.
Brian Armstrong, CEO of another US cryptocurrency exchange Coinbase, said in an interview with Bloomberg TV the previous day that if Binance's acquisition does not materialize, FTX investors will suffer losses, adding, "This is not a good situation for anyone."
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