In an unexpected twist, cryptocurrency exchange Binance said it is buying its smaller rival FTX as the firm faced a liquidity crisis that rattled the digital asset and raised fears of contagion.
“This afternoon, FTX asked for our help,” Zhao “CZ” Changpeng tweeted on Tuesday. “There is a significant liquidity crisis. To protect users, we have signed a non-binding [letter of intent] Fully intended to help take over http://FTX.com and help cover the liquidity crisis.”
The announcement shocked crypto investors, as the alliance between the two largest crypto exchanges by volume will mark a tectonic power shift in the industry.
The news prompted a brief recovery in the digital asset, but not enough to calm worried investors.
According to CoinDesk, bitcoin fell more than 10% on Tuesday to hit a 52-week low of $17,600. FTX’s in-house coin FTT collapsed, losing 85% of its value. Other digital assets and stocks linked to the industry, such as Coinbase, also fell.
FTX’s founder and CEO, Sam Bankman-Fried, is one of the most influential figures in the crypto space, and became a one-man banker over the summer, spending nearly $1 billion to help ailing firms sink crypto prices.
However, on Tuesday the tables were turned when Bankman-Fried’s firm suffered a run on the FTT.
“I’m really shocked by this,” an industry executive told CNN Business. “The FTX fail… would be like a Lehman Brothers event for space. But if they got bailed out successfully, maybe that would end things.”
Binance and FTX did not immediately provide details about the deal, and noted that both parties were tracing it in real time.
“There is a lot to cover and it will take some time,” Zhao tweeted. “This is a highly dynamic situation, and … Binance has the discretion to exit the transaction at any time.”
Fears about Bankman-Fried’s trading house, FTX, and Alameda Research began after a report published by crypto news site CoinDesk last week suggested that most of Alameda’s balance sheet was made up of FTT, a relatively illiquid currency. is token.
On Sunday, Binance chief Zhao said that his company will sell all of its holdings — about $580 million — in FTT “due to recent disclosures.” His announcement shocked investors and caused FTT to drop.
In short, Banksman-Fried was getting a capital call for $580 million, and didn’t have the liquidity to meet it.
“It’s an “incredible situation, and a complete turnaround from basically anything that anyone would have expected even a week ago,” the industry executive told CNN Business.