In a surprise move, cryptocurrency exchange Binance said it was buying its smaller rival FTX after the company faced a liquidity crisis that disrupted the digital asset and raised contagion fears.
“FTX asked us for help this afternoon,” Zhao “CZ” Changpeng tweeted on Tuesday. “There is a severe liquidity crunch. To protect users, we have signed a non-binding [letter of intent] Intends to fully acquire http://FTX.com and help deal with the liquidity crunch. ”
The announcement shocked cryptocurrency investors as the partnership between the two largest cryptocurrency exchanges by trading volume would mark a structural shift in the industry’s forces.
The news prompted a brief recovery in the digital asset, but not enough to calm anxious investors.
Bitcoin plunged more than 10% on Tuesday, hitting a 52-week low of around $17,600, according to CoinDesk data. FTX’s internal token, FTT, collapsed, losing 85% of its value. Other digital assets and stocks tied to the industry, such as Coinbase, also fell.
Sam Bankman-Fried, founder and CEO of FTX, one of the most influential figures in the cryptocurrency space, became a sole proprietorship bank in the summer, spending about $1 billion to support the fall in the price of cryptocurrencies. Troubled company.
On Tuesday, however, the tide turned as Bankman-Fried’s firm faced a run on FTT.
“I was actually shocked by this,” an industry executive told CNN Business. “The FTX failure…a bit like Lehman’s activity in the space. But if they were rescued successfully, then that could block the pass.”
Binance and FTX did not immediately provide details about the transaction, noting that the two sides are working on a settlement in real time.
“There is a lot to cover and it will take some time,” Zhao tweeted. “This is a highly dynamic situation, and…Binance has the right to withdraw from trading at any time.”
Last week, a report published by crypto news site CoinDesk suggested that Alameda’s balance sheet is largely made up of FTT, a relatively illiquid token.
On Sunday, Zhao, the head of Binance, said his company would sell all of its stake in FTT — about $580 million — “due to recent revelations.” His statement spooked investors and sent FTT plummeting.
Essentially, Bankman-Fried received a capital request of $580 million, but did not have enough liquidity to meet it.
The industry executive told CNN Business it was an “unbelievable situation, basically completely different from what anyone expected a week ago.”