WASHINGTON/LONDON, Nov 8 (Reuters) – Crypto giant Binance has signed a non-binding agreement to buy rival FTX’s non-US unit, FTX.com, to help cover a “liquidity crunch” at the crypto exchange, they said. the companies on Tuesday, in a surprise move that raised fresh concerns about the risks investors face in the volatile cryptocurrency market.
Binance CEO Changpeng Zhao said in a tweet that FTX, run by billionaire Sam Bankman-Fried, had “asked for our help” after “a major liquidity crisis.”
He said that Binance, the world’s largest cryptocurrency exchange, will conduct due diligence in the coming days as the next step towards acquiring FTX.com. The US operations of Binance and FTX are not part of the deal, Bankman-Fried said in a separate tweet.
“It’s been an open secret for a while that FTX and Binance were in an existential contest; the only surprise today is that things have escalated so quickly to an apparent conclusion,” said Joseph Edwards, investment adviser at Securitize Capital. “The measure should provide relief to consumers in the short term, but raises questions in the long term.”
The deal is the latest emergency bailout in the crypto world this year as investors pulled out of riskier assets amid rising interest rates. The cryptocurrency market is down about two-thirds from its peak at $1.07 trillion.
It also underscores an abrupt reversal of fortunes for Bankman-Fried, which had positioned itself as the savior of the industry by bailing out rivals that had run into trouble earlier in the year.
“Liquidity crisis issues continue to haunt the crypto market,” said Dan Raju, CEO of brokerage and financial services provider Tradier. “Scary to think that FTX, which is one of the largest crypto exchanges in the world, was hit by liquidity issues and Binance, their biggest rival, is coming to their rescue. This will create some weird bedfellows.”
FTX had seen around $6 billion withdrawals in the 72 hours before Tuesday morning, according to a message to staff sent by Bankman-Fried that was seen by Reuters.
“On an average day, we have tens of millions of dollars of net inflows and outflows. Things were mostly average until this weekend a few days ago,” Bankman-Fried wrote in the message to staff sent Tuesday morning. morning. “In the last 72 hours, we’ve had approximately $6 billion in net withdrawals from FTX.”
Withdrawals on FTX.com are “effectively paused,” he wrote, adding that they would be resolved in “the near future.”
FTX did not immediately respond to a request for comment on the message to staff.
‘LEGITIMATE REASON TO WORRY’
The deal arrives after the internal token of crypto exchange FTX crashedlosing a third of its value and dragging down other major digital assets, amid rumors of pressure on FTX’s finances.
Binance, which dominates the crypto industry, with more than 120 million users, is currently under investigation by the US Department of Justice for possible violations of money laundering rules. Reuters reported last week.
A spokesman for the US Commodity Futures Trading Commission said the agency is monitoring the situation.
News of the deal initially buoyed major cryptocurrencies, but those gains were quickly erased.
The FTX token, which grants holders discounts on FTX trading fees, last traded at 11.83, down 47%.
Bitcoin, the largest digital token, was down 6%.
“People have a legitimate reason to worry about the safety of their digital assets if one of the world’s largest centralized exchanges ends up in financial difficulties,” said Pascal Gauthier, CEO and president of crypto security firm Ledger. “It is time for an honest, industry-wide acknowledgment of the importance of crypto custody.”
Cryptocurrency users raised questions on Twitter last week about the FTX token following a report by news website CoinDesk about a leaked balance sheet from Alameda Research, a trading firm founded by Bankman-Fried that has close ties to FTX.
On Sunday, Zhao said his company liquidate their FTX token holdings due to unspecified “recent revelations”.
Bankman-Fried had initially said the trade was “fine” and that the concerns were “false rumours”.
In a tweet on Tuesday, he said his teams were working to eliminate the withdrawal backlog: “This will eliminate liquidity crises. This is one of the main reasons we have asked Binance to come in.”
“A *huge* thank you to CZ, Binance,” Bankman-Fried wrote, referring to the rival CEO using his initials.
Reporting by Tom Wilson in London and Hannah Lang in Washington Additional reporting by Tom Westbrook in Singapore, Prentice in Washington and Angus Berwick in New York Editing by Megan Davies, Catherine Evans and Matthew Lewis
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