Binance will back out of its deal to save Sam Bankman-Fried’s FTX cryptocurrency exchange, citing concerns about its business practices and investigations by US financial regulators.
The move comes a day after Binance, one of the world’s largest crypto trading platforms, tentatively agreed to buy FTX after it ran out of liquidity.
“As a result of corporate due diligence, as well as the latest news reports of mishandling of client funds and alleged investigations by US agencies, we have decided that we will not pursue a potential acquisition of FTX.com,” Binance said in a statement late today. Wednesday.
Bankman-Fried told investors on Wednesday that FTX needed up to $8 billion in funding after being inundated with withdrawal requests from clients, as its deal with Binance looked set to fall apart, according to two people familiar with the matter.
The turnaround came as the Securities and Exchange Commission widened its investigation into FTX, which includes examining the platform’s cryptocurrency lending products and the management of customer funds, according to a person familiar with the matter.
Wall Street’s top regulator began the probe months ago but sent additional requests for information after Binance announced on Tuesday it would buy FTX amid a liquidity crunch, the person added. The agency is also looking into FTX’s relationship with an American entity, FTX US.
The Commodity Futures Trading Commission was also investigating the company, according to Bloomberg. The SEC and CFTC declined to comment. FTX did not immediately respond to requests for comment on regulatory investigations.
Bitcoin and other crypto-related assets have fallen sharply over the past two days as traders worry about the possible collapse of FTX, one of the largest crypto trading platforms, and Alameda Research, a major firm that also has digital asset trading led by Bankman. -Fried.
Bitcoin, the most traded cryptocurrency, fell more than 14 percent to below $16,000, its lowest level since late 2020. Solana, a coin that counts Alameda as a major backer, fell 44 percent, while shares of US crypto exchange Coinbase fell. 9.5 percent. Coinbase declined to comment.
“The markets have now gone into complete panic,” said Jon de Wet, chief investment officer at crypto asset manager Zerocap. “All hell is breaking loose”.
On Wednesday night, Sequoia Capital told its investors that it had reduced its stake in FTX to zero. The California-based venture capital firm invested $213 million in FTX companies in 2021 across its two funds. A fundraising round in October of that year valued FTX at $25 billion.
“We are in the business of taking risks,” Sequoia said in its letter to investors. “At the time of our investment in FTX, we went through a rigorous due diligence process. FTX is expected to generate $1 billion in revenue and more than $250 million in operating income by 2021, Sequoia said.
The collapse of the short-lived deal between Binance and FTX comes months after high-profile failures by previously prominent crypto groups, including lender Celsius Network and hedge fund Three Arrows Capital.
Bankman-Fried earned a reputation as a crypto savior amid the turmoil, backing struggling companies including lender BlockFi.
The latest phase of the crypto selloff is more concerning because “the number of entities with stronger balance sheets that can bail out those with little capital and high leverage is shrinking within the crypto ecosystem,” JPMorgan said Wednesday.
FTX previously acknowledged that it could not meet customer withdrawal demands without external funding. “It’s bad for FTX clients, they have money stuck in FTX and they can’t get it out,” said Jim Bianco, president of Bianco Research, a consulting firm.
Binance CEO Changpeng Zhao reached an agreement to buy FTX and freeze its customers’ deposits after just hours of negotiations on Tuesday, after Bankman-Fried appealed to his former investor-turned-rival for help.
“Before that, I had very little knowledge of the internal state of affairs at FTX,” Zhao said in a memo to his staff on Wednesday.
The Binance boss had hoped to prevent further customer losses after a series of high-profile outages this year dented confidence in the sector. He also wanted to prevent a chain reaction of losses for companies exposed to FTX and Alameda through lending or trading positions.
“Initially, our hope was to be able to support FTX customers to provide liquidity, but the issues are unmanageable or unmanageable,” Binance said. “Any time a major industry player fails, retail consumers will suffer.
Additional reporting from Tabby Kinder in San Francisco