Sam Bankman-crypto Fried’s empire is on the verge of disintegrating as a result of Binance withdrawing from its plans to acquire FTX, the business announced on Wednesday.
The decision to reverse course was made just one day after Binance CEO Changpeng Zhao revealed that his company and the largest cryptocurrency company in the world had reached a non-binding agreement to purchase FTX’s non-U.S. businesses for an undisclosed sum, saving the company from a liquidity crisis. Private investors put FTX’s value at $32 billion earlier this year.
According to a business statement, Binance claims that “the issues are beyond our control or ability to help.” The statement added that the decision to cancel the transaction, which was revealed yesterday, was motivated by news reports alleging mishandled customer cash and purported US agency investigations.
Even yesterday, it appeared that the Binance purchase might not go through because CEO Changpeng Zhao emphasised that merely a letter of intent had been signed. Before executing a legally-binding purchase agreement, Binance would do proper research throughout the week, Zhao added.
Bankman-Fried was frantically trying to gather money from venture capitalists and other investors on Monday night before he went to Binance because to a liquidity crisis. Zhao initially consented to help, but his business rapidly changed its mind, citing accusations of “mishandled customer funds and alleged U.S. agency investigations.” Bankman-Fried informed investors on Wednesday that FTX required capital of up to $8 billion because it had received a flood of customer withdrawal demands and that its agreement with Binance appeared doomed to failure.
As traders worry about the effects of a probable collapse of FTX, one of the largest crypto trading venues, and Alameda Research, a sizable digital asset trading firm also under Bankman-Fried control, bitcoin and other crypto-related assets have fallen substantially over the previous two days. The most widely used cryptocurrency, Bitcoin, fell more than 14% to around $16,000, its lowest point since late 2020. Solana, a cryptocurrency with Alameda as a significant sponsor, plunged 44%, and shares of Coinbase, a US-listed cryptocurrency exchange, sank 9.5%.
Between Monday and Tuesday, FTT already lost 80% of its value, dropping to $5 and wiping out more than $2 billion in a single day. On Wednesday, it fell by more than half to about $2.30, bringing the entire market value of the tokens in circulation down to about $308 million.
The collapse of the Binance-FTX transaction is the most recent episode in a startling implosion that has shook the cryptocurrency community this week. Just on Monday, Bankman-Fried made an effort to convince investors that the company’s assets were secure. However, the sell-off started after Binance’s Zhao announced publicly that his company was selling its holdings in FTX’s native token FTT, and FTX could not stop it.
Zhao summed up what he thought went wrong with FTX in a tweet from yesterday: exchanges shouldn’t ever utilise their own tokens as collateral and they should keep sizable reserves on hand rather than using their capital efficiently.
Who will suffer from collapse of the Binance-FTX transaction
Customers of FTX are most likely to suffer if it goes out of business. The safeguards offered to conventional banks do not apply to cryptocurrency held in or invested in FTX, according to the Federal Deposit Insurance Corporation. FTX already recognised that it could not satisfy consumer withdrawal requests without outside funding. It’s problematic for FTX’s clients since they have money locked up in the company and are unable to get it out, according to Jim Bianco, owner of the consultancy Bianco Research.
In the statement by Binance it is stated that “Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.”
Technoun is here to give updates of all the tech news. Follow here: https://technoun.com/