Binance will drop its deal to rescue cryptocurrency exchange FTX from Sam Bankman-Fried, 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 to buy FTX after suffering a liquidity crisis.
“As a result of the company’s due diligence, as well as the latest news reports regarding mismanaged client funds and alleged investigations by U.S. agencies, we have decided not to pursue the potential acquisition of FTX.com,” Binance said in a statement late at night. Wednesday.
Bankman-Fried told investors on Wednesday that FTX needed up to $8 billion in funding after it was inundated with withdrawal requests from customers as its deal with Binance looked certain to fall apart, according to two people familiar with the matter. case.
The turnaround came as the Securities and Exchange Commission expanded an investigation into FTXwhich includes reviewing the platform’s cryptocurrency lending products and managing customer funds, according to a person familiar with the matter.
Wall Street’s top regulator launched the probe months ago, but sent requests for additional information after Binance announced on Tuesday that it would acquire FTX amid a liquidity crunch, the person added. The agency is also looking into FTX’s relationship with a US entity, FTX US.
The Commodity Futures Trading Commission was also investigating the company, Bloomberg reported. The SEC and CFTC declined to comment. FTX did not immediately respond to requests for comment on the regulatory investigations.
Bitcoin and other crypto-related assets have fallen sharply over the past two days as traders fret over the fallout from a potential collapse of FTX, one of the biggest crypto trading platforms, and of Alameda Research, a major digital asset trading company also controlled by Bankman. -Fried.
Bitcoin, the most actively traded cryptocurrency, fell more than 14% to below $16,000, its lowest level since late 2020. Solana, a coin that counts Alameda as a top backer, fell 44%, while shares of US-listed crypto exchange Coinbase fell 9.5%. Coinbase declined to comment.
“The markets are now in a panic,” said Jon de Wet, chief investment officer at crypto wealth manager Zerocap. “All hell breaks loose.”
On Wednesday evening, Sequoia Capital announced to 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 two of its funds. A fundraiser in October of the same year valued FTX at $25 billion.
“We’re in the business of taking risks,” Sequoia’s letter to investors said. “At the time of our investment in FTX, we conducted a rigorous due diligence process.” FTX made about $1 billion in revenue and more than $250 million in operating revenue in 2021, Sequoia said.
The collapse of Binance’s short-lived deal with FTX comes months after the high-profile failures of once-big crypto groups, including lender Celsius Network and hedge fund Three Arrows Capital.
Bankman-Fried has 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 troubling as the “number of entities with stronger balance sheets able to rescue those with low capital and high leverage is shrinking within the crypto ecosystem,” he said. JPMorgan in a note Wednesday.
FTX has previously acknowledged that it is unable to meet customer withdrawal requests without external funds. “It’s bad for FTX customers, they have money trapped in FTX and they can’t get it out,” said Jim Bianco, president of Bianco Research, a consulting firm.
Binance CEO Changpeng Zhao reached a deal to buy FTX and back client deposits after just hours of trading on Tuesday, after Bankman-Fried appealed to his former investor-turned-rival for help. assistance.
“Before that, I had very little knowledge of the internal state of affairs at FTX,” Zhao said in a note to his team on Wednesday.
The Binance boss had hoped to prevent more clients from suffering losses after this year’s high-profile string of failures shook confidence in the industry. He also wanted to prevent a chain reaction of damage to companies exposed to FTX and Alameda through lending or trading positions.
“At first, our hope was to be able to help FTX customers provide liquidity, but issues are beyond our control or our ability to help,” Binance said. “Every time a major player in an industry goes bankrupt, retail consumers will suffer.”
Additional reporting by Tabby Kinder in San Francisco