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Tag: Acquire

  • Binance Will NOT Acquire FTX: What is Next?

    Binance Will NOT Acquire FTX: What is Next?

    Binance CEO Changpeng Zhao (CZ) decided that Binance will not go through with the deal to acquire FTX, one day after he announced that he intended to acquire FTX. This shocking turn of events could create a ripple effect throughout the crypto market, affecting all investors and businesses. In case you are out of the loop, our previous article “SBF vs CZ War” covers the core timeline of what has been happening that led to this event. You can also check out our latest video — FTX Collapsing: Biggest Disaster in Crypto? for more insight.

    Why Did Binance Back Out of the Acquisition Deal?

    Binance announced on Twitter that they will not go through with the deal to acquire FTX as a result of “corporate due diligence” and “mishandled customer funds” in FTX’s books pending investigations by U.S. regulatory agencies.

    This is in reference to speculations of FTX violating its own terms of service by using customer funds for trading and loaning it out to Alameda Research for a bailout in Q2 2022 following the Terra Luna collapse. To simply put, instead of keeping customer funds on FTX as liquid cash, FTX used customer funds to buy FTT tokens to bail out Alameda. (https://www.algerie360.com/)

    After this revelation, FTX users were rushing to cash out fearing the exchange might be going insolvent. This led to a liquidity crunch, forcing FTX to halt all crypto withdrawals. We are talking about at least $8 billion of user funds stuck on the exchange which possibly cannot be saved, according to Wall Street Journal.

    This is the most likely scenario, ascertained and corroborated by many crypto experts. jonwu.eth on Twitter gives a perfect summary of how everything went down. Funnily enough, FTX CEO Sam Bankman-Fried (SBF) deleted his Tweet which he assured clients that their assets are fully protected. But as of now, these speculations are not officially confirmed. This is where U.S. regulators (SEC, DOJ) are stepping in to investigate FTX for potential securities-law violations, according to Wall Street Journal.

    How This Will Affect All Investors

    Binance acknowledged that the collapse of FTX will severely impact all retail investors, but will continue to build towards a stronger decentralized ecosystem. This is reiterated by CZ in his internal message sent to all Binance teams globally.

    source: @cz_binance (Twitter)

    It is not just user funds that are stuck on FTX, but other crypto projects’ as well. According to CoinDesk, many crypto businesses and ventures have exposure to FTX in one way or another, whether via storing funds, providing liquidity or borrowing and lending. This affects all ecosystems throughout the crypto industry as wild price swings trigger a domino effect of forced liquidations across the market, similar to Three Arrows Capital or Voyager Digital after the Terra Luna collapse.

    It is the first time Bitcoin (BTC) has fallen below $16,000 since November 2020, a 77% decrease from its all-time high last year. Since BTC has broken past its first support level of $19,000, it would take time for its range to be established after capitulation event. As BTC is the first and largest cryptocurrency by market cap, it practically dictates the price actions of all altcoins including Ethereum (ETH). We can expect the market to be highly volatile in the coming weeks.

    source: @CryptoCapo_ (Twitter)
  • Binance to Acquire FTX: What This Means for All Investors

    Binance to Acquire FTX: What This Means for All Investors

    On 8th November 2022, Binance CEO Changpeng Zhao (CZ) announced on Twitter that Binance intends to fully acquire FTX to help cover their liquidity crunch after FTX CEO Sam Bankman-Fried (SBF) reached out to Binance for help. In case you are out of the loop, our previous article “SBF vs CZ War” covers the core timeline of what has been happening that led to this acquisition.

    In this article, we will break down the acquisition events as it unfolds and explain how this will affect every investor in the crypto space. You can also check out our latest video — FTX Collapsing: Biggest Disaster in Crypto? for more insight.

    FTX Halts Withdrawals due to Liquidity Crunch

    According to a report by Reuters, SBF sent an internal message on Tuesday morning to company employees stating that around $6 billion had been withdrawn out of FTX. Given the situation, FTX had no choice but to halt all crypto withdrawals due to lack of liquidity, which confirmed insolvency rumors about FTX.

    Since the liquidity of FTX and Alameda Research are mostly held in illiquid FTT (FTX native token) instead of liquid cash, there was no way for FTX users to cash out their funds. Moreover, no strategic investors and partners of FTX were able to help cover their billions of dollars in debt. As a last resort, SBF turned to none other than CZ who has more than enough resources and manpower to rescue him.

    Binance to Acquire FTX

    Hours after the withdrawal suspension, CZ announced on Twitter that Binance signed a non-binding Letter of Intent (LOI), intending to fully acquire FTX and help cover the liquidity crunch to protect users. For the time being, Binance is conducting a full Demand Draft (DD) in which they are assessing the situation about the acquisition.

    However, keep in mind that the LOI is non-binding, which means Binance has the discretion to pull out from the deal at any time. But if it goes through, FTX will be officially owned by Binance, possibly marking it the biggest moment in crypto history.

    On the withdrawal end, Binance has helped FTX on clearing out withdrawal backlogs. According to a Tweet by SBF, this will clear out liquidity crunches and all assets will be covered 1:1. However, some users are still experiencing withdrawal delays as shown by the comments under the Tweet.

    What will Happen to FTX Users after Binance Acquisition?

    Although this may seem like a big move for Binance, the outcome created a ripple effect that could potentially affect every investor in the crypto space. Good or not, only time will tell.

    Binance May Damage the Long-Term Interests of Crypto

    As we have learned from FTX’s downfall as well as Terra Luna’s collapse, one thing is for certain in the crypto space: nothing is certain. No one saw it coming. The same could be said about Binance as well. (https://www.blazeair.com/) That is not to say that Binance is next, but the possibility is never zero.

    After all, despite Binance being a highly reputable crypto exchange and CZ’s passion and commitment to building a truly decentralized ecosystem, it is a centralized business at the end of the day. With FTX out of the equation, Binance will be the undisputed powerhouse in the crypto industry, which goes against the idea of decentralization, the core pillar of crypto. If Binance falls, the crypto market goes back to the dark ages. Gracey Chen, Managing Director of Bitget, said on Twitter that Binance’s acquisition of FTX harms decentralization and could damage the long-term interests of the industry.

    Nevertheless, CZ assures the public that the business model of Binance is aligned with decentralization and puts user security first. He asserted that Binance has never used BNB as collateral for loans and has never taken on debt. He also added that all crypto exchanges should incorporate merkle-tree proof-of-reserves, since fractional reserves only work for banks and not crypto exchanges. This reflects CZ’s proactiveness in building a more secure and decentralized ecosystem.

    Increased Scrutiny and Regulations on Crypto Exchanges

    Binance’s acquisition of FTX has definitely raised major concerns for government authorities. Several CEOs of other major crypto exchanges such as Jesse Powell (Kraken), Brian Armstrong (Coinbase), Jeremy Allaire (Circle), and Kris Marszalek (Crypto.com) expressed on Twitter that government authorities might step in next to enforce more heavy-handed regulations.

    Although strict regulations could stabilize the market and protect user funds, it also limits digital freedom for retail investors as the whole point of crypto is trustless transactions without central authorities. It is basically a dilemma: too much involvement from the government defeats the purpose of the crypto space, too little breeds unregulated securities and malicious actors.