The largest crypto exchange by trading volume announced its decision to purchase FTX, a move following an extended period of speculation sparked by a Coindesk article on November 2 that FTX and its sibling business Alameda Research encountered a liquidity crisis.
The deal was disclosed in tweets, except for financial terms, after the rumour that the balance sheet of Alameda Research was heavily reliant on illiquid tokens like FTT. Both FTX and Alameda were established and are primarily regulated by Bankman-Fried.
According to Sam Bankman-Fried, the transaction doesn’t impact FTX US and Binance.US, two separate entities. He tweeted that “Things have come full circle, and FTX.com’s first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD etc.)”
1) Hey all: I have a few announcements to make.
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.).
— SBF (@SBF_FTX) November 8, 2022
Binance CEO CZ also confirmed the deal, saying the two giants signed a non-binding letter of intent. The two CEOs noted that a complete due diligence process would be in progress in the next few days.
This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire https://t.co/BGtFlCmLXB and help cover the liquidity crunch. We will be conducting a full DD in the coming days.
— CZ 🔶 Binance (@cz_binance) November 8, 2022
Previously, some observers thought Alameda’s finances – and perhaps FTX’s – were not as solid as expected. CZ exerted increasing pressure by revealing his intention to sell his holdings of FTX’s FTT token, pushing down the price of FTT. Alameda’s CEO, Caroline Ellison, stated that she would purchase Binance’s FTT holdings for $22 each to reduce the impact on prices.
The situation worsened when FTX customers hastily withdrew funds en masse from FTX but encountered difficulties. In his tweets about the deal with Binance, Bankman-Fried wrote, “FTX.us’s withdrawals are and have been live, is fully backed 1:1, and operating normally.”
Investors had withdrawn a large number of assets from FTX. According to Coinglass, the current FTT future positions have exceeded $310m. Binance’s positions accounted for 47%, surpassing FTX. The current funding rate in Binance is -700%.
According to Coinglass, the current FTT future positions have exceeded $310m, which is the second highest in history. Binance’s positions accounted for 47%, surpassing FTX. The current funding rate in Binance is -700%. https://t.co/8h4VC2NreQ
— Wu Blockchain (@WuBlockchain) November 8, 2022
After the news, the FTT token rose 20% to $17.50 from about $14.50. Binance’s BNB token climbed 8% from $326 to $355. The BTC price also pared its losses after the disclosure of the deal.