Binance Backed Off, FTX Drama Looks Similar To Twitter
Binance has opted not to acquire rival FTX.
This comes as due diligence processes reveal unsustainable flaws in FTX's financials and structure.
Binance's move is likely to wipe out other cryptocurrency companies, including lenders.
It's been a turbulent few days in the highly unregulated
Cryptocurrency sector, with mudslinging on Twitter, a surprise exchange takeover offer that then collapsed, and token values plummeting.
Similarly, Binance Holdings Ltd., the world's leading crypto exchange, was set to purchase struggling rival FTX on November 9. However, Binance called off the acquisition deal on Wednesday. Its decision to withdraw exacerbated the ongoing crypto bear market, pushing Solana and Bitcoin to their lowest level in two years.
While cryptocurrency may appear to be a niche sector of finance, the saga between two of its top players has upended the crypto ecosystem and is likely to have far-reaching consequences.
Why did Binance Back Off?
On November 9, an American media outlet reported that the US SEC and CFTC are investigating whether the FTX exchange mishandled funds or not, as well as its connection with FTX US and Alameda Research.
The announcement might be the primary reason for Binance to back off from the acquisition deal. As a result, on November 9 mid-night, Binance CEO CZ tweeted:
“We have decided not to pursue the potential acquisition of FTX as a result of corporate due diligence and the latest media reports alleging mismanaged client funds and suspected US agency investigations.”
Binance then stated that it wanted to assist FTX's consumers but that "the difficulties are beyond our control or ability to assist." The exchange also stated that if a major crypto business fails, regular investors suffer. "We've witnessed over the previous several years that the crypto ecosystem is getting more resilient, and we believe that over time, outliers who misappropriate user funds will be weeded out by the free market," Binance added.
The exchange concluded by stating that the ecosystem will benefit from stronger "regulatory frameworks" and "more decentralization." Following the announcement of the back-off, the broader crypto market plummeted dramatically.
What Comes Next?
As per reports, FTX CEO Sam Bankman-Fried called investors and announced that the exchange needed $8 billion in emergency funding to fulfill withdrawal demands and was looking to raise $3 billion to $4 billion. The SBF further stated that if the company does not receive any capital inflow it will have to file for bankruptcy.
And if SBF-owned FTX declares bankruptcy, the current crypto winter will last a little longer. As a result, we will most certainly witness another LUNA-like crisis, with many affiliated companies going bankrupt because of their significant exposure.
Do you think FTX will file for bankruptcy or will find another acquisition partner? Share your views in the comment section below.
Read also: How bad is Mike Novogratz's FTX exposure?
