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Binance swoops in to save rival FTX

binance-buy-crypto-ftx-thefutureparty
Binance takes control. // Illustration by Kate Walker

Binance swoops in to save rival FTX

 

The Future. The once high-flying FTX had a reversal of fortune this week and needed money fast… and its rival Binance has come to the rescue. While Binance has plenty of cash to fulfill FTX’s cash crunch (it’s the largest crypto exchange at a $300 billion market cap; FTX is worth $32 billion), the merger of the two powerful exchanges may kick up antitrust scrutiny… or at least crater the confidence of traders who are already battling a persisting crypto winter.

Middle fish
After spending the past year bailing out bankrupt crypto exchanges, FTX is now being bailed out by Binance, per NYT.

  • After facing a “liquidity crunch” (the inability to fulfill withdrawals), FTX is being bailed out by rival Binance.
  • The deal is for an undisclosed sum — but TechCrunch notes it’s “likely not great / utterly terrible for investors of FTX.
  • The deal will allow FTX to complete withdrawal requests, of which there are many right now (more on that below).
  • The deal won’t include FTX’s smaller US-based arm, FTX US.

The deal — a major surprise that even caught FTX’s investors off guard — comes at the height of a social media spat between FTX founder Sam Bankman-Fried and Binance founder Changpeng Zhao over… well… FTX’s financial health.

Still melting
With FTX seemingly looking like the white knight of the crypto world for so long, why did the company suddenly need saving?

  • A balance sheet from Bankman-Fried’s trading firm, Alameda Research, leaked, showing that it was on shaky financial footing — bad news when most of its assets are tied to FTX’s native token, FTT.
  • That spurred Binance (a former FTX investor) to announce it was selling its FTT to avoid risk — a move that sent the worth of FTT spiraling.
  • That made people panic that FTX could go under, so they started withdrawing their crypto holdings — nearly $6 billion in 72 hours instead of the typical “tens of millions” per day.
  • Suddenly without enough money to process withdrawals, FTX had no choice but to look for outside funding… and, ultimately, go to Binance for help.

The moves have hurt not only FTX but the entire crypto market, with every coin from Bitcoin to Ethereum to Dogecoin dropping in value. It looks like that crypto winter — where $2 trillion in value was lost this spring — is holding on even longer.

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