After cryptocurrency exchange Binance announced it was backing out of a plan to acquire struggling rival FTX Trading, cryptocurrency values fell for the second day in a row.
After Binance verified prior rumors and news reports that it was prepared to withdraw from the FTX arrangement, agreed upon by the CEOs of the two exchanges on Tuesday, bitcoin fell to a two-year low. The agreement was subject to Binance performing its due diligence on FTX’s balance sheet.
Binance said in a statement on Wednesday that following an initial evaluation, it had serious reservations that led it to withdraw from the agreement.
The challenges are beyond our control or capacity to assist, Binance stated in a statement. “In the beginning, our objective was to be able to support FTX’s clients to provide liquidity,”
According to CoinDesk, the price of bitcoin fell more than 13% to $15,840, its lowest point since November 2020. In the beginning of the week, it had surpassed $20,000. Ethereum, the second biggest cryptocurrency, fell 13%.
After facing what could be compared to a bank run in the cryptocurrency world, FTX had decided to sell itself to Binance. Customers left the exchange when they started to wonder if FTX had enough capital. Sam Bankman-Fried, the CEO and creator of FTX, was shocked by the abrupt sale. Earlier this year, when he assisted in the rescue of several bitcoin businesses that were having financial difficulties, he was hailed as something of a hero.
FTT, FTX’s own cryptocurrency token, fell more than 50% in response to the reports. A week ago, the token was worth ten times what it is now, or roughly $2.50. The main worry among cryptocurrency investors was whether Alameda Research, an associate of FTX, had a balance sheet overburdened with progressively worthless FTT tokens whose aggregate value would not surpass the exchange’s liabilities, essentially rendering FTX bankrupt.
After Binance got an opportunity to review FTX’s financial records, it was obvious that the issue was too complex to be solved. Unable to talk publicly due to lack of authorization, a person with knowledge of the situation described the books as a “black hole” in which it was hard to distinguish between the assets and liabilities of the Alameda Research hedge fund and those of the FTX exchange.
The source with knowledge of the situation claimed, “The books were a nightmare, and the connection between FTX and Alameda was, at best, incestuous.”
The Wall Street Journal, citing unnamed sources, claims that Bankman-Fried requested his investors for $8 billion on Wednesday to cover withdrawal requests as further sign of FTX’s dire financial situation.
According to Bloomberg News and other media sources, U.S. authorities are currently apparently looking into FTX for how it handled clients’ money.
Shares of publicly traded exchanges with exposure to cryptocurrencies also fell in response to the news. Coinbase shares lost over 10%, while Robinhood shares fell almost 14%.
The value of cryptocurrency assets has fallen precipitously this year, and FTX is the latest cryptocurrency company to experience financial hardship. Other failures include Three Arrows Capital, an Asian hedge fund, and Celsius, a business that resembled a bank and accepted cryptocurrency deposits in exchange for income.
