Among the weirdest tech mergers in recent memory (and that's saying something) was just announced between two of the top cryptocurrency exchanges. After a public and brief battle, Binance aims to purchase its rival FTX. According to Bloomberg, Binance CEO Changpeng Zhao dumped $529 million worth of FTX on November 6th in response to "recent facts that came to light," namely a CoinDesk story indicating FTX was experiencing a liquidity crisis. That prompted FTX CEO Sam Bankman-Fried to claim that Binance was spreading "false allegations" about his company, despite his insistence that everything was "great." Today, however, the two firms announced their merger agreement and the resolution of the "liquidity crunch" that had been hampering FTX's activities.
Based on the evidence, it appears that FTX was in a very dire situation. CryptoQuant, speaking with TechCrunch, highlighted the 83% drop in FTX's net crypto asset holdings over the past two days. According to reports, this made processing withdrawals through the markets or other exchanges extremely problematic, forcing FTX to adopt stablecoin (cryptocurrency fixed to an external value) liquidity. The stablecoin reserve of the corporation has decreased by 93% over the previous two weeks, and withdrawals of stablecoins have dropped to almost nothing as of early this morning. Bloomberg reports that investors are leaving the market due to the problems.
1) Hey all: I have a few announcements to make.
— SBF (@SBF_FTX) November 8, 2022
Things have come full circle, and https://t.co/DWPOotRHcX’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for https://t.co/DWPOotRHcX (pending DD etc.).
The contract is non-binding, and the corporations will only start completing due diligence (that is, an appraisal) in the "coming days." If completed, though, the merger might shake up the crypto sector by eliminating Binance's major competitor. This won't overcome fears of a lengthy crypto market decline, but may offer Binance a US presence it doesn't currently have.
Keep in mind the significance of that "if." Bankman-Fried of FTX has been testifying before Congress, and the SEC and the Financial Conduct Authority of the United Kingdom have apparently opened investigations into Binance. Countries are worried that Binance isn't following rules and may even be breaking the law in some cases, especially in the United States. Considering that Binance's US affiliate was banned in 2019, it's not certain that regulators in any nation will approve of the proposed union.
