Two of the top cryptocurrency exchanges have recently announced one of the strangest technology mergers in recent memory (and that’s saying a lot). Following a short but very public spat, Binance intends to purchase its competitor FTX. According to Bloomberg, on November 6th, Binance CEO Changpeng Zhao sold $529 million in FTX’s native token in reaction to “recent facts that came to light,” namely a CoinDesk article indicating FTX was experiencing a liquidity problem. As a result, FTX CEO Sam Bankman-Fried accused Binance of spreading “false allegations” about his firm while insisting that everything was “great.” However, by today, the two businesses had struck a takeover agreement, while recognising that Binance will assist in resolving a “liquidity bottleneck” hurting FTX transactions.
Data shows that FTX was in a very terrible situation. In an interview with TechCrunch, CryptoQuant revealed that FTX’s net crypto asset holdings had dropped by 83 percent in only two days. Withdrawals were apparently so problematic that FTX had to create stablecoin (crypto fixed to an external value) liquidity to execute the transactions via markets or other exchanges. In the last two weeks, the company’s stablecoin reserve has shrunk by 93 percent, and corresponding withdrawals had dropped to almost nothing by early this morning.
1) Hey all: I have a few announcements to make.
Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
— SBF (@SBF_FTX) November 8, 2022
The agreement is not legally binding, and the corporations will only begin doing due diligence (i.e., an appraisal) in the “coming days.” However, if finalised, the purchase might shake up the crypto sector by removing Binance’s major competition. This will not alleviate concerns about a prolonged crypto market decline, but it may provide Binance with a US footprint that it presently lacks.
Mind you, that “if” is significant. FTX’s Bankman-Fried has been testifying before Congress, and Binance is said to be under investigation by both the US Securities and Exchange Commission and the UK’s Financial Conduct Authority. Countries are worried that Binance is not following rules and may be breaching the law (in the United States). The planned merger is unlikely to be approved by authorities in either nation, especially since Binance’s US affiliate was outlawed in 2019.