Binance Signs Letter Of Intent To Acquire Crypto Exchange FTX
The crypto industry has witnessed one of its most remarkable days. Binance, the world’s biggest crypto exchange by trading volume, has agreed to acquire FTX, one of the most popular crypto exchanges.
Binance’s founder and CEO, Changpeng Zhao, announced that the company has signed a non-binding letter of intent to acquire FTX following a liquidity crunch experienced by the exchange.
A report emerged last week showing that Alameda Research, a crypto trading firm with close ties to FTX, had considerable debt on its balance and the majority of its equity in FTT, the native token of the FTX exchange with relatively low liquidity. The report stirred fears of FTX not having enough funds to cover customer obligations and caused users to increase their withdrawal rates from the exchange.
Shortly after the report emerged, Binance announced that it was selling all its FTT tokens, which made up a great deal of the FTT tokens in circulation.
Expectedly, the huge sell-off was bound to depress the price of FTT tokens, affecting Alameda and FTX’s balance sheets. Mass panic ensued, leading FTX to reportedly pause withdrawals on Tuesday.
Following a Twitter war of words between the founders of Binance and FTX, it appears that Binance emerged victorious by putting downward pressure on FTX’s balance, causing a liquidity crunch, and shrewdly swooping in to acquire the company.
Binance says it’ll carry out more due diligence “in the coming days” regarding its proposed FTX acquisition. It has only signed a non-binding letter of intent, meaning it can back out of the deal at will.
A rumor has emerged of FTX’s acquisition price being $1. If true, it implies that FTX was effectively insolvent and needed a bailout from Binance to stay afloat. It’ll mark a huge fall from grace for FTX, which raised $1.8 billion from venture capitalists, most recently at a valuation of $32 billion.
Binance has also announced that it’ll soon start showing users proof of its reserves, presumably to avoid the type of panic that brought down FTX.
The price of FTT, FTX’s native crypto token, has slumped over 80% in the past 24 hours, according to CoinMarketCap. SOL, another well-known token that counts FTX as a major shareholder, has fallen nearly 30% in the same time frame.
