Bankman-Fried bows to Binance Rescue as FTX buckles

Billionaire Changpeng “CZ” Zhao became the undisputed king of the crypto world on Tuesday, shocking the industry with a move to take control of, the struggling company run by its chief rival and former follower, Sam Bankman-Fried.

Binance Holdings’ letter of intent to acquire Zhao came after a bitter feud between the two men boiled over, with Zhao actively undermining confidence in FTX’s finances and helping spark an exodus of users from the three-year-old exchange. A day before accepting Binance’s deal, Bankman-Fried said on Twitter that assets on FTX were “good.” On Tuesday, he had changed his voicemail.

Such moves would be banned on Wall Street but are not uncommon in this restless corner of finance, which remains largely unregulated roughly a decade after its founding. Ironically, it was Bankman-Fried who was pushing for greater regulation, which Zhao largely opposed.

“I’m sorry that I haven’t done better and I will do what I can to protect clients’ assets and your investment,” Bankman-Fried wrote in a letter to investors. “Wish I had more details for you guys right now; I don’t know yet,” the letter read.

FTX’s Sam Bankman-Fried

Photographer: Jeenah Moon/Bloomberg

After initially rising on the news, cryptocurrency prices have plummeted as deal terms are scarce and uncertainty swirls over whether it will even happen. Binance said the deal came after “a significant liquidity crisis” occurred on FTX and the company asked for its help. The takeover is a surprising twist for FTX, whose 30-year-old founder had emerged in recent years as the prime-ready face of crypto and amassed a fortune approaching $20 billion.

The acquisition — which does not involve FTX.US, a separate exchange also founded by Bankman-Fried — will reshape the $1 trillion-plus industry that is already facing a prolonged market downturn. Both founders made the announcement on Twitter simultaneously. “To protect users, we have signed a non-binding letter of intent, intending to fully acquire and help cover the liquidity crisis,” Zhao said in a tweet.

Changpeng Zhao

Photographer: Nathan Laine/Bloomberg

FTX was hit by about $6 billion in withdrawals in the 72 hours to Tuesday morning, Reuters reported, citing a message sent to staff by Bankman-Fried.

“Our teams are working to clear the backlog of withdrawals,” Bankman-Fried said on Twitter. “It will eliminate liquidity problems; all assets will be hedged 1:1. This is one of the main reasons we asked Binance to come.

It’s a quick improvement for Bankman-Fried, who’s no stranger to bare-knuckle feats in his role as founder of Alameda Research, the crypto trading firm whose fate hasn’t been mentioned in tweets. announcing the bailout. The former Jane Street trader made no apologies for Alameda’s desire to take profit opportunities in the Wild West crypto space, framing it as part of a long-term plan to give billions to charity. was valued as recently as January at $32 billion in a funding round investors such as Temasek, Paradigm, Ontario Teachers’ Pension Plan Board and SoftBank Vision Fund 2.

Bitcoin oscillated between gains and losses, falling below $19,000 for the first time since October 21. BNB, the native blockchain token Binance, followed suit and fell around 5% after initially surging 15%.

For the broader crypto industry, the demise of FTX is another example of a once-powerful player being grounded when a crisis of confidence forced a run on its assets. Like others before him, including lenders Celsius Networks and hedge fund Three Arrows Capital, reserves proved insufficient when market sentiment turned against him, even though top executives said all was well. .

The tension between Bankman-Fried and Zhao has been simmering almost from the start. In 2019, Binance invested in FTX, then a derivatives exchange. The following year, Binance launched its own crypto derivatives, quickly becoming the leader in this space.

Tensions rose as the two companies were increasingly viewed as different by regulators. Bankman-Fried was testifying in Congress, while Binance faced regulatory investigations around the world and pointed out that it is not headquartered anywhere.

The two companies also fought over assets, with both bidding for Voyager Digital’s assets. FTX won the Voyager auction.

WATCH: Crypto exchange Binance buys rival, on undisclosed terms.

Source: Bloomberg

The drama came to a head on Sunday, when Zhao announced that he would sell all his holdings of FTT, the native token of the FTX exchange, worth $529 million at the time due to “recent revelations that have been revealed”. The tweet followed a story from CoinDesk saying that Alameda Research, a trading house owned by Bankman-Fried, had much of its assets in FTT token. FTT fell more than 70% to around $6, according to prices on CoinMarketCap.

Binance is by far the largest crypto exchange, with a trading volume of around $40 billion to date. FTX is second in spot trading, with a volume of around $4 billion, according to data from CoinMarketCap. CoinMarketCap is owned by Binance.

(Adds quote from Bankman-Fried letter to investors.)

To contact the reporters on this story:
Yueqi Yang in New York at [email protected];
Olga Kharif in Portland at [email protected]

To contact the editors responsible for this story:
Sally Bakewell to [email protected];
stacy-marie ismael to [email protected]

Dave Liedtka, Beth Williams

© 2022 Bloomberg LP All rights reserved. Used with permission.

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