Binance to Acquire FTX Amidst Liquidity Issues

After weeks of rumors that FTX and corporate sister Alameda Research were experiencing a liquidity issue, Binance announced on Nov. 8 that it had agreed to acquire the crypto exchange FTX.

The merger, which was announced in tweets like many others during the almost week-long drama, brings together two of the biggest names in cryptocurrency trading. Binance is the largest cryptocurrency exchange by volume, and FTX was valued at $32 billion at the beginning of this year. Financial details of the purchase were not made public, despite the fact that FTX US, a separate company of FTX, was not a part of it.

“Things have come full circle, and’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for (pending DD etc.),” FTX CEO Sam Bankman-Fried tweeted Tuesday.

Changpeng “CZ” Zhao, CEO of Binance, also announced the agreement on Twitter, stating the two exchanges had signed a non-binding letter of intent. Both Bankman-Fried and Zhao stated that a thorough due diligence procedure will start in the following several days. The acquisition, which is still undergoing due diligence and has not been finalized, is a temporary solution to prevent the bankruptcy of SBF’s crypto exchange.

The Story Behind the Chaos Between Binance and FTX

The transaction follows a CoinDesk scoop last week that raised questions about Alameda Research and its over-reliance on illiquid coins like FTT. According to several analysts, the narrative implied that Alameda’s finances—and maybe FTX as well—were not as stable as previously believed.

Then, after the CoinDesk article revealed that a significant portion of Alameda’s balance sheet was made up of FTT, Binance’s CEO increased the pressure by declaring on Sunday that he intended to liquidate his holdings in FTX’s FTT token.

He announced Binance would be selling these tokens into the open market, and drew a worrying comparison to LUNA, another project Binance was early to back that later collapsed after a bank run. CZ was seizing the moment caused by market uncertainty, after Alameda Research’s financials were leaked to CoinDesk.

A Failed Attempt at Mitigating the Situation

CZ’s choice pushed down FTT’s price. Bankman-Fried and Caroline Ellison, CEO of Alameda, did their best to calm investors’ nerves by proposing to minimize a sharp selloff of FTT by offering CZ $22 per token. While SBF said that client assets were “secure” and had never been rehypothecated into other crypto trades, Ellison claimed that the reportedly additional $10 billion Alameda had was not taken into consideration in the leaked financial sheet.

Industry observers criticized SBF for the exchange’s lack of openness during this process and demanded that he provide evidence of reserves for both FTX and Alameda. Given SBF’s recent stance about the need for greater regulation and better governance in crypto, opponents point out that it isn’t too much to expect.

It became more evident that Binance would decline SBF’s requests to buy its FTT tokens over the counter in order to reduce the sell-off. Rather, it would loom above these possessions—the outcome of what CZ referred to as a “divorce”—like a sword of Damocles. In overnight trade, cryptocurrencies like BTC and ETH, which were trading sideways yesterday, started to fall. Following the agreement, FTX’s FTT token initially rose, but this only lasted a short time; after starting the day just under $20, it is currently trading at roughly $4.

Early on Tuesday, when clients of FTX attempted to make a withdrawal from FTX, the situation deteriorated. Numerous consumers voiced their complaints about their problems in FTX’s Telegram group and on Twitter. Money withdrawal obstacles foreshadowed the bankruptcy of numerous more cryptocurrency companies in 2022.