For the umpteenth time this year, the crypto world is in abject chaos.
Here's why, this time: The world's largest cryptocurrency exchange, Binance, made an offer Tuesday morning to buy the second-largest exchange, FTX, after the former more or less caused a liquidity crisis at the latter. The tumult has caused the prices of most major coins to drop, including bitcoin, which fell over 10% in the past day.
The saga spun out of a feud between the firms' founders, Changpeng Zhao and Sam Bankman-Fried, respectively, over Bankman-Fried's crypto lobbying in Congress that apparently painted Binance in a bad light with U.S. regulators. Zhao had been one of FTX's first investors, but that put the two founders at odds.
Bankman-Fried appeared before Congress and donated heavily to Democratic candidates, while Zhao's Binance was the subject of numerous investigations across the world and eschewed regulators' attempts to rein the industry in.
It all came to a head Monday when Zhao went on Twitter to say that he was pulling out of FTX by selling off its native token en masse, casting doubt on the company's finances. This caused a rush by users to withdraw funds from FTX. According to Reuters, withdrawals reached $6 billion in the 72 hours before Tuesday morning.
Zhao's actions also caused the price of FTX's native coin, FTT, to crash. A report last week by Coindesk looking into FTX's finances revealed much of its assets and the assets of its sister company, the trading firm Alameda Research, were in this FTT coin. The companies also had billions in loans collateralized by FTT, which is a coin that FTX essentially manufactures out of thin air.
Bankman-Fried responded to Zhao's notice of withdrawal by saying that everything was fine at the exchange and that withdrawals were just backlogged. However, a day later he agreed to sell FTX to Binance.
Not much is known about the sale terms as of yet, other than it will not affect the companies' U.S. subsidiaries. Both exchanges had to spin off separate U.S. entities to comply with regulators. Binance.US is based in Palo Alto, while FTX.US is based in Miami. According to Bankman-Fried on Twitter, neither of the U.S. companies will be affected by the deal, meaning FTX.US will not be acquired.
The apparent acquiescence of one of cryptocurrency's most heralded companies will no doubt cause shockwaves across the whole industry.
Some are already being felt in the Bay Area, with share prices of Robinhood falling 19% on news that FTX would be sold. FTX had considered buying the trading platform earlier in the year, following the acquisition of a number of troubled crypto companies.
Up until this point, Bankman-Fried had been acting as the industry's buyer of last resort, buying bankrupt firms Celsius and Voyager, to boost the industry as a whole after the crypto crash earlier this year. However, now FTX looks like the distressed companies they purchased, who also had similar liquidity crises.
FTX also had deals with a number of Bay Area institutions, which now may be in jeopardy.
It had signed a 10-year deal with UC Berkeley to name its California Memorial Stadium the FTX Field — its second naming rights after naming the Miami Heat's stadium the FTX Arena. Vandals have already changed the name on the California Memorial Stadium Wikipedia page to BNB stadium. However, the deal was done under FTX.US, which is a separate legal entity, and is not being acquired by Binance as part of the deal.
But FTX proper did just recently sign a deal with Visa to launch crypto debit cards in 40 countries.
Its venture arm, FTX Ventures, is also invested in a number of Bay Area crypto projects like Helium, Aptos Labs, Mysten Labs and Coinfeeds.
San Francisco-based Solana has been one of the hardest hit by the acquisition news. The company's SOL coin has fallen almost 25% based on uncertainty. Bankman-Fried and FTX were an early proponent of the blockchain, and Alameda Research reportedly has considerable holdings of the token.
