Binance to purchase FTX in bailout offer
Cryptocurrency exchange FTX faced a sudden liquidity crunch, with Binance offering to acquire the company.
Just after 3 a.m. AEDT on Wednesday, November 9, Sam Bankman-Fried (SBF), CEO of cryptocurrency exchange FTX, tweeted he would be selling FTX to cryptocurrency exchange Binance.
1) Hey all: I have a few announcements to make.
Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
— SBF (@SBF_FTX) November 8, 2022
In the Twitter thread, SBF stated he and his team had “asked Binance to come in” to help “clear out liquidity crunches,” insinuating FTX did not have the liquidity on hand to do so itself.
Minutes later, Binance CEO Changpeng Zhao (CZ) tweeted to confirm that “FTX asked for [Binance’s] help” and that he and his team had signed a non-binding letter of intent to purchase FTX.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
This agreement came after CZ tweeted that he was planning to dump upwards of $500,000,000 of FTT tokens — the native token for the FTX exchange — on the public market less than 48 hours prior.
As part of Binance’s exit from FTX equity last year, Binance received roughly $2.1 billion USD equivalent in cash (BUSD and FTT). Due to recent revelations that have came to light, we have decided to liquidate any remaining FTT on our books. 1/4
— CZ 🔶 Binance (@cz_binance) November 6, 2022
It was rumored that FTX had to defend the value of FTT at $22 per token after Caroline Ellison — CEO at Alameda Research, a quant trading firm started by SBF — tweeted that Alameda would offer to buy all of Binance’s FTT tokens at this level.
@cz_binance if you're looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22!
— Caroline (@carolinecapital) November 6, 2022
Alameda successfully defended the $22 level until late Monday evening EST, when it began to dip significantly below, reaching a low of $3.12 before rebounding to $5.51 at the time of publishing.
The crash of FTT likely caused liquidity issues for Alameda — and potentially sister company FTX — due to the amount of debt the company had secured against the value of the FTT token. The devaluation of FTT means the company may be unable to service its debts.
Twelve hours following the crash of FTT, SBF made the announcement that Binance would acquire FTX.
What does this mean for FTX users?
Binance’s offer to buy FTX is conditional, and the deal is yet to be finalized.
Users have reported difficulty withdrawing funds from the FTX exchange, which may persist until the terms of the deal are settled.
2) Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that.
— SBF (@SBF_FTX) November 8, 2022
SBF said that “all assets will be covered 1:1” and that FTX is working to clear out the backlog of user withdrawals. Ensuring that user funds are covered is part of why Binance has been asked to step in and acquire the company.
FTX reported that FTX.US is a separate entity, and its US customers should not be affected by the events surrounding the global FTX exchange.
Disclosure: The author owns a range of cryptocurrencies at the time of writing.