Binance to purchase FTX in bailout offer

Posted: 9 November 2022 12:43 pm

Cryptocurrency exchange FTX faced a sudden liquidity crunch, with Binance offering to acquire the company.

Just after 3am AEDT on Wednesday 9 November, Sam Bankman-Fried (SBF), CEO of cryptocurrency exchange FTX, tweeted he would be selling FTX to cryptocurrency exchange Binance.

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 agreement came after CZ tweeted that he was planning to dump upwards of US$500,000,000 of FTT tokens – the native token for the FTX exchange – on the public market less than 48 hours prior.

It was rumored that FTX had to defend the value of FTT at US$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.

Alameda successfully defended the US$22 level until late Monday evening EST when it began to dip significantly below, reaching a low of US$3.12 before rebounding to US$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.

12 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 finalised.

Users have reported difficulty withdrawing funds from the FTX exchange, which may persist until the terms of the deal are settled.

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.

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