Binance Acquires FTX to Help Cover Up Liquidity Crunch.
Changpeng Zhao’s Binance has signed a nonbinding agreement to buy Sam Bankman-Fried’s FTX non-U.S unit to help cover up a liquidity crunch. But the deal has raised fresh concerns about FTX’s financial health and sent the crypto market into a fresh plunge.
CZ had announced plans on Sunday to sell Binance’s roughly $530 million holding of the native token of FTX – FTT. This came after a report stating that much of the balance sheet of Bankman-Fried’s trading house Alameda Research is made up of the FTT token. As such, FTT’s price dived in high trading volumes. This prompted traders to withdraw funds from FTX. Sam Bankman-Fried’s crypto exchange saw $6 billion in withdrawals in 72 hours before Tuesday morning.
Dan Rajo, the CEO of Tradier, said it’s scary to think that FTX, which is one of the largest crypto exchanges in the world, was bitten by liquidity concerns. He expressed surprise at Binance, which is FTX’s biggest rival, coming to its rescue.
Meanwhile, other crypto companies are trying to circumvent FTX’s fall. Coinbase assured its investors that it has no exposure to Alameda Research and said it has no loans to FTX. It highlighted that regardless of whether the Binance and FTX transaction completes, Coinbase has very little exposure to FTX and has no exposure to the FTT token.
Brian Armstrong, CEO Coinbase, said the platform is not investing customer funds, not into market making or engaged in any kind of complex arrangement with parties that it owns. He believes if the deal with Binance were to fall through, it would mean FTX customers would take losses. Armstrong feels that’s not good for anybody. He outlined that customers are at risk when they go to less regulated, offshore exchanges that don’t have to provide clear financial statements.