Binance will not complete its proposed takeover of FTX after reviewing the cryptocurrency exchange's internal data and loan commitments, the Wall Street Journal reported Wednesday. The news confirmed CoinDesk's earlier reports Binance was unlikely to follow through with the deal.
"Our hope was to be able to support FTX's customers to provide liquidity, but the issues are beyond our control or ability to help," the world's largest crypto exchange told the WSJ.
Binance signed a nonbinding letter of intent to buy FTX's non-U.S. operations on Tuesday, in an effort to solve FTX's liquidity crunch. Cryptocurrency prices tumbled over concerns of FTX's financial health and potential insolvency of the fourth largest crypto exchange early in the week. But reversed higher Thursday following the CPI report.
Meanwhile, FTX is facing a regulatory probe over its handling of client funds and lending practices, according to Bloomberg.
FTX Selloffs Start
Users rushed to withdraw their funds from FTX at the beginning of the week. They withdrew more than $1.2 billion from the exchange Monday. Bitcoin prices dived below $20,000 for the first time since late October, and cryptocurrencies tumbled lower Tuesday. But Bitcoin rebounded above $17,700 on Thursday following the CPI report.
Some users complained of hours-long wait times for their transaction processes. Meanwhile, the losses continued as the price of FTX's crypto coin FTT collapsed 80% to $5 by Tuesday afternoon. FTX worries dragged the rest of the crypto market down with it, with negative sentiment bleeding over to stock market trading by early Tuesday afternoon.
Binance CEO Changpeng Zhao announced the deal on Twitter, writing on Tuesday, "This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a nonbinding LOI (letter of intent), intending to fully acquire FTX.com and help cover the liquidity crunch."
The deal will not affect FTX.us and Binance.us, FTX CEO Sam Bankman-Fried said. Both are separate companies from their namesake firms.
The companies did not disclose terms of the deal. Due diligence will take place in the coming days. All user assets will be "covered 1:1," according to Bankman-Fried.
FTX Financial Concerns
Issues first arose last week after CoinDesk reported that FTX's FTT token made up a majority of Alameda Research's balance sheet. Alameda Research is FTX's sister company and Bankman-Fried's trading firm. Meanwhile, FTX controls and mints the FTX tokens.
As of June 30, Alameda had $14.6 billion in assets and $8 billion of liabilities on its balance sheet, according to CoinDesk. Of the assets, $3.66 billion were "unlocked" FTT tokens, $2.16 billion were listed as "FTT collateral" and $3.37 billion in "crypto held." Along with $2 billion in equity securities, $863 million "locked" SOL, the native token of the Solana blockchain, $292 million "unlocked" SOL and $41 million in SOL collateral.
Roughly $292 million "locked" FTT and $7.4 billion in loans compose the majority of the firms liabilities. And FTX noted that "locked tokens conservatively treated at 50% fair value marked to FTX/USD order book," CoinDesk reported.
Alameda Research CEO Caroline Ellison on Saturday tweeted "that specific balance sheet is for a subset of our corporate entities," and that Alameda has more than $10 billion in assets that aren't reflected on the leaked documents. She added that the company "returned most of its loans by now."
Binance Begins Selling
On Sunday, Zhao, commonly known as "CZ," announced Binance was liquidating all of its FTT holdings due to "recent revelations." "Liquidating our FTT is just post-exit risk management, learning from LUNA," he said. LUNA was Terra Network's peg for its algorithmic stablecoin, TerraUSD, which collapsed earlier this year and wiped $40 billion from the market.
As part of Binance's exit from FTX equity last year, Binance received roughly $2.1 billion in the form of FTT and BUSD, according to Zhao. BUSD is Binance's stablecoin, according to Zhao. He tweeted the sales would take "a few months to complete" and would be completed "in a way that minimalizes market impact."
However, Saturday afternoon nearly 23 million FTT tokens, worth around $580 million at the time, were moved to a Binance exchange wallet, Etherscan data shows.
"If you're looking to minimize the market impact on your FTT sales, Alameda will happily buy it all from you today at $22!" Ellison tweeted at Zhao on Sunday. And on Sunday, Zhao declined in response on another thread saying, "I think we will stay in the free market."
FTX Price Action, Binance Deal
*Note: cryptocurrency price data may be delayed
Following the Binance transfer, FTT fell from $25 to $22 by Sunday.
Bankman-Fried tried to sooth speculation on Monday tweeting, "a competitor is trying to go after us with false rumors. FTX is fine. Assets are fine." He went on to delete that Twitter thread sometime Tuesday or Wednesday. Meanwhile, FTT collapsed more than 80% to fall below $3 by Wednesday afternoon.
Bitcoin dropped near $16,000 by late Wednesday amid the FTX fallout after nearing $21,500 over the weekend. Bitcoin reversed higher to $20,500 on Tuesday after the Binance LOI was announced. But it quickly fell back below $18,500 by the afternoon.
You can follow Harrison Miller for more stock news and updates on Twitter @IBD_Harrison
