WASHINGTON/LONDON, Nov 8 (Reuters) – Crypto major Binance has signed a binding agreement to buy FTX’s non-U.S. rival unit FTX.com to help address a “liquidity crunch” at the cryptocurrency exchange, the companies said on Tuesday. a sudden move that raised fresh concerns about the risks investors face in the volatile crypto market.
Binance CEO Changpeng Zhao said in a tweet that FTX, run by billionaire Sam Bankman-Fried, had “requested our help” after a “significant decrease in liquidity”.
He said Binance, the world’s largest crypto exchange, will conduct due diligence in the coming days as the next step toward acquiring FTX.com. US operations of Binance and FTX are not part of the deal, Bankman-Fried said in a separate tweet.
Joseph Edwards, investment advisor at Securitize Capital, said: “It’s been an open secret for some time that FTX and Binance have been in an existential rivalry; the only surprise today is how quickly things came to a conclusion.” “This move should provide some relief to consumers in the short term, but will raise questions in the long term.”
The deal is the latest emergency bailout in the world of cryptocurrencies this year, as investors have pulled out of riskier assets amid rising interest rates. The cryptocurrency market has fallen by nearly two-thirds from its peak to $1.07 trillion.
It also highlights a sudden turnaround in the fortunes of Bankman-Fried, which had positioned itself as the industry’s savior by bailing out struggling rivals earlier in the year.
“Liquidity crunch issues continue to plague the crypto market,” said Dan Raju, CEO of Tradier, a financial services and brokerage provider. “It’s scary to think that FTX, one of the biggest crypto exchanges in the world, is being bitten by liquidity concerns, and Binance, their biggest competitor, is coming to their rescue. That would make for some amazing colleagues.”
According to a message sent by Bankman-Fried to employees seen by Reuters, FTX saw about $6 billion in losses in the 72 hours before Tuesday morning.
“On an average day, we have tens of millions of dollars in/out. Until the weekend, a few days ago, things were mostly average,” Bankman-Fried wrote in a message sent Tuesday morning. “In the last 72 hours, we’ve made nearly $6 billion in net cash from FTX.”
Withdrawals on FTX.com are “effectively suspended,” he wrote, adding that it will be resolved in the “near future.”
FTX did not immediately respond to a request for comment on the message to employees.
“LEGIT REASON FOR CONCERN”
The deal comes after domestic crypto exchange token FTX lost a third of its value and dragged down other major digital assets amid talk of strain on FTX’s finances.
Binance, which dominates the crypto industry and has more than 120 million users, is currently being investigated by the US Department of Justice for possible violations of money laundering rules, Reuters reported last week.
A spokeswoman for the US Financial Futures Trading Commission said the agency was monitoring the situation.
News of the agreement initially spurred large cryptocurrencies, but these gains were quickly erased.
The FTX token, which gives holders a discount on FTX trading fees, was last traded at 11.83, down 47%.
Bitcoin, the largest digital token, fell 6%.
Pascal Gauthier, CEO and chairman of crypto security firm Ledger, said: “People have legitimate reason to be concerned about the security of their digital assets if one of the world’s largest centralized exchanges faces financial difficulties. This is an industry-wide assessment of the importance of crypto storage.”
Last week, crypto users on Twitter raised questions about the FTX token after news website CoinDesk reported on leaked balance sheets from Alameda Research, a trading firm founded by Bankman-Fried that has close ties to FTX.
On Sunday, Zhao said his company was liquidating its FTX shares due to “recent revelations”.
Bankman-Fried initially said the exchange was “good” and that the concerns were “false rumours”.
In a tweet on Tuesday, he said his teams were working to address the withdrawal backlog: “This will address the liquidity gap. This is one of the main reasons we’re coming in from Binance.”
“A big thank you to CZ, Binance,” wrote Bankman-Fried, referring to the rival’s CEO, who goes by his initials.
Reporting by Tom Wilson in London and Hannah Lang in Washington Additional reporting by Tom Westbrook in Singapore, Prentice in Washington and Angus Berwick in New York Editing by Megan Davis, Katherine Evans and Matthew Lewis
Our Standards: The Thomson Reuters Trust Principles.