New York November 9 2022: Billionaire Changpeng “CZ” Zhao consolidated his position atop the crypto world on Tuesday with a stunning move to take over FTX.com, the suddenly troubled firm led by his chief rival and one-time disciple, Sam Bankman-Fried.
The letter of acquisition intent by Zhao’s Binance Holdings came after a bitter feud between the two men spilled out into the open, with Zhao actively undermining confidence in FTX’s finances and helping spark an exodus of users from the three-year-old FTX.com exchange. A day before reaching a deal, Bankman-Fried said on Twitter that assets on FTX are “fine.”
Such moves would be prohibited on Wall Street but isn’t uncommon in this rough-and-tumble corner of finance, which remains largely devoid of regulation about a decade year after its founding. Ironically, it was Bankman-Fried who was pushing for greater regulation, something that Zhao has largely opposed.
Terms of the emergency buyout were scant. Binance said the agreement came amid “a significant liquidity crunch” befell FTX and the firm asked for its help. The takeover is a startling twist of fake for FTX, whose 30-year-old founder had emerged in recent years as the ready-for-prime-time face of crypto and amassed a fortune approaching $20 billion.
The acquisition will reshape the more than $1 trillion industry that is already dealing with a prolonged market downturn. The two founders made the announcement on Twitter concurrently. “To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch,” Zhao said in a tweet.
“A huge thank you to CZ, Binance, and all of our supporters,” Bankman-Fried said on Twitter. “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’s fast comeuppance for Bankman Fried, no stranger to bare-knuckled exploits in his role as founder of Alameda Research, the crypto trading firm whose fate was left unmentioned in the tweets announcing the bailout. The former Jane Street trader has been unapologetic about Alameda’s willingness to pounce on profit opportunities in the wild-west crypto space, framing it as part of a long-term plan to give away billions to charity.
Bitcoin swung between gains and losses, dropped below $19,000 for the first time since Oct. 21. BNB, the native token of the Binance blockchain, did the same and was little changed after jumping as much as 15%.
For the crypto industry broadly, FTX’s demise is another example of a once-towering player laid low when a crisis of confidence forced a run on its assets. Like others before it, including lenders Celsius Networks and hedge fund Three Arrows Capital, reserves proved inadequate when market sentiment turned against it, even as top executives said nothing was amiss.
The tension between Bankman-Fried and Zhao has been brewing almost since the start. Back in 2019, Binance invested into FTX, then a derivatives exchange. The next year, Binance launched its own crypto derivatives, quickly becoming the leader in this space.
Tensions rose as the two companies increasingly had been seen as different by regulators. Bankman-Fried was testifying in Congress, while Binance was said to be facing regulatory probes around the world and emphasized that it’s not headquartered anywhere.
The two companies have also been competing for assets, with both bidding for assets of Voyager Digital. FTX won the auction of Voyager.
The drama reached fever pitch on Sunday, when Zhao announced he would sell all of his FTT holdings, the native token of FTX exchange, worth $529 million at the time due to “recent revelations that came to light.” The tweet followed a story from CoinDesk saying that Alameda Research, a trading house owned by Bankman-Fried, had a lot of its assets in FTT token. FTT tumbled by more than 50% to around $9, according to prices on CoinMarketCap.
Binance is the largest crypto exchange by far, with trading volume of about $31 billion so far today. FTX is second in spot trading, with volume of about $3.7 billion, according to CoinMarketCap data. CoinMarketCap is owned by Binance.