A day after announcing it was pursuing the acquisition of the beleaguered exchange, FTX, Binance has made an about-turn citing corporate due diligence, reports of mishandled customer funds, and US agency investigations.
“In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” Binance said in a Twitter post early November 10, 2022.
Sad day. Tried, but 😭
— CZ 🔶 Binance (@cz_binance) November 9, 2022
On November 8, 2022, Binance CEO, Changpeng Zhao, again announced a non-binding LOI (letter of intent) to acquire FTX.com which is facing a liquidity crunch and has suspended customer withdrawals. According to Zhao, the acquisition would help protect user funds that remain under severe risk.
This included a rider with Zhao saying they could pull out of the deal at any time as they conducted due diligence.
Zhao (CZ) kicked off a storm in the crypto world on November 6, 2022, when he said Binance would liquidate its FTX token ($FTT) holdings.
“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 come to light, we have decided to liquidate any remaining FTT on our books.”
The move to liquidate $FTT followed a report that Alameda Research’s assets worth $14 billion were mostly held in $FTT, which was created by FTX.
Both FTX and Alameda are led and started by Sam Bankman-Fried. According to Crunchbase, Alameda Research is a quantitative cryptocurrency trading firm that provides liquidity in cryptocurrency and digital assets markets.
Two big lessons:
1: Never use a token you created as collateral.
2: Don’t borrow if you run a crypto business. Don't use capital "efficiently". Have a large reserve.
Binance has never used BNB for collateral, and we have never taken on debt.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
On speculation that Binance was beating down a competitor, CZ has said the fall of a single company is bad news for the wider industry.
In a memo to employees, he urged them not to view the fall of FTX as a win for Binance because users have less confidence in crypto following the fiasco. Second, regulators will make it harder for industry players to get licenses, and lastly, he expects his company to come under more attack as a clearer industry leader.
FTX has been one of the more influential companies in the crypto sector attracting record investments in 2021 to reach a valuation of $32 billion from the likes of Softbank and Sequoia. This helped the firm expand rapidly including through holdings and associations in Africa.
In March 2022, FTX partnered with fintech company, AZA Finance, to expand the adoption of Web3 and cryptocurrencies in Africa. AZA Finance is Africa’s biggest non-bank currency broker leveraging digital assets, and the deal would help make it easier to deposit and pay out in African currencies on FTX.com, including mobile money and local bank account integrations.
In November 2021, FTX led a $150-million series C round in Pan-African fintech Chipper Cash part of a mission to make money transfer as simple as a text message and to accelerate the adoption of crypto in Africa. In January 2022, FTX announced a $2 billion global venture fund to go to crypto and fintech startups. The fund would focus on diverse areas including gaming, social software, fintech, healthcare, and even non-crypto deals.
Besides more damage to crypto perceptions, the market was heavily affected. Prices of bitcoin and Ether fell by more than 10% when the deal was announced wiping out more than $60 billion from the market.
As of this writing trading at $15,762 the lowest in more than a year.
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