Binance is pulling rank in the role of crypto consolidator in chief amid public tensions with rival FTX.
"This afternoon, FTX asked for our help. There is a significant liquidity crunch," Binance CEO CZ tweeted on Tuesday. "To protect users, we signed a non-binding [letter of intent], intending to fully acquire http://FTX.com and help cover the liquidity crunch. We will be conducting a full [due diligence] in the coming days."
A liquidity crunch at FTX — which had been buying up troubled crypto platforms in 2022 — hints at the potential selling of crypto to shore up finances.
"Things have come full circle, and http://FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for http://FTX.com (pending [due diligence] etc.)," FTX Founder and CEO Sam Bankman-Fried (SBF) tweeted.
Cryptocurrency exchange Binance founder and CEO Changpeng Zhao speaks at a Binance fifth anniversary event in Paris, France, July 8, 2022. To match Special Report FINTECH-CRYPTO/BINANCE-ZHAO REUTERS/Tom Wilson ·Reuters Staff / reuters
Shares of Coinbase and Robinhood, both of which opened lower amid the tensions between two of the largest crypto trading platforms, rose on the news and then fell. (SBF holds a 7.6% stake in Robinhood.)
Bitcoin also rose after being under pressure before dropping to new session lows.
The "strategic transaction" follows days of turbulence for FTX and its sibling trading firm, Alameda Research — both founded and majority-owned by Bankman-Fried — with FTX's token (FTT) tumbling 58% in the last 24 hours.
"This is a highly dynamic situation, and we are assessing the situation in real time. Binance has the discretion to pull out from the deal at any time," CZ added. "We expect FTT to be highly volatile in the coming days as things develop."
SBF also stated: "Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that."
So far in 2022, total crypto volumes worldwide across exchanges have fallen by 21% to $86 trillion, according to crypto indexing platform Nomics.
In that period, Binance accounted for 21.7% of total global crypto trading volume while FTX holds a 3.96% share. The total crypto market capitalization, meanwhile, has fallen by 57% from $2.18 trillion to $936 billion. Since the deal was announced cryptocurrency selling has caused the market to plummet to 7% of that total according to Coinmarketcap.
A combination of Binance and FTX — the top and third largest crypto trading platforms by volume, respectively — would create a behemoth.
Sam Bankman-Fried speaks onstage during the first annual Moonlight Gala benefitting CARE (Children With Special Needs) on June 23, 2022 in New York City. (Photo by Craig Barritt/Getty Images for CARE For Special Children) ·Craig Barritt via Getty Images
How the public spat began
The public tensions between CZ and SBF arose surrounding FTT, the token issued by crypto exchange FTX.
The bulk of selling took place after Zhao tweeted on Sunday that Binance planned to liquidate all its holdings of FTT over the next several months based on “recent revelations.”
Zhao later cited a Coindesk report from last week, which found based off documents seen by Coindesk, Alameda Research held at least $3.6 billion in “unlocked FTT” tokens at the end of Q2.
Between Sunday and Tuesday morning, investor panic fueled selling in FTX’s exchange token, which has fallen by 26.8% from $23.6 to $17.2 and contributed to the sell off of crypto's total market cap by 7% from $1.05 trillion to $979 billion for the same period according to CoinMarketCap.
“It was totally rational that people questioned [FTX and Alameda’s] assets,” Ki Young Ju, CEO of CryptoQuant, a South Korean crypto analytics platform that tracks crypto investment flows, told Yahoo Finance.
Based on data collected by Ju's team, FTX's net crypto assets plummeted by 83% over the past two days since Zhao's tweet.
While CZ and SBF traded accusations over Twitter now they seem to have made an agreement in an attempt to placate the entire crypto ecosystem.
"I know that there have been rumors in media of conflict between our two exchanges, however Binance has shown time and again that they are committed to a more decentralized global economy while working to improve industry relations with regulators," SBF added in his announcement.
