Competitor Binance's failed takeover of struggling crypto exchange FTX.com has rocked the entire digital money market. Bitcoin slipped to a two-year low below $16,000 after Binance canceled its proposed bailout on Wednesday. Since the all-time high in November 2021, when the market's largest and oldest so-called cryptocurrency was still just over $68,000, it has lost more than three quarters of its value.
On Thursday, the cryptocurrency market initially recovered a little from renewed turbulence. In the afternoon, a bitcoin cost around 16,500 US dollars.
Binance announced the bad news for FTX on Twitter on Wednesday: "We have decided that we will not pursue the potential acquisition any further." Binance is the world's largest marketplace for digital currencies like Bitcoin. Reason are, among other things, media reports on misconduct in handling customer funds and alleged investigations by US authorities.
After FTX got into trouble, the two companies initially announced on Tuesday that Binance wanted to take over most of FTX's business. However, it was only a non-binding declaration of intent, as Binance boss Changpeng Zhao immediately emphasized. After the start of the audit, Binance quickly distanced itself from the takeover plan.
Zhao, who is best known online as "CZ," plays an obscure role in the back-and-forth. On Sunday, "CZ" itself reinforced doubts about FTX's cash reserves with a tweet and fueled the flight of customers there. FTX's liquidity shortage was also reinforced by the fact that Binance had announced that it would sell larger holdings of FTX's own digital currency FTT.
Zhao and Bankman-Fried were once close friends
Zhao and FTX boss Sam Bankman-Fried were once closely connected as pioneers in the industry and partners, but then developed into arch-rivals with their crypto exchanges and recently fell out over regulatory issues. Bankman-Fried became more and more the mouthpiece of the crypto scene and tried to lobby politicians and supervisors, which Zhao didn't like.
Bankman-Fried was one of the major donors to current US President Joe Biden's campaign in 2020. Now he is standing in front of the ruins of his FTX group. A few months ago, the 30-year-old was still considered a child prodigy and a beacon of hope in the crypto industry, who is helping financially weak companies.
How things will continue for FTX customers is unclear. Bankman-Fried assured on Tuesday that all deposits are protected and will be paid out in full. But that seems increasingly uncertain. Until the situation escalated, Bankman-Fried had also maintained that there was nothing to worry about and dismissed rumors of a shortage of money as false.
Funding gap of four billion dollars
On Wednesday, Bankman-Fried informed his own investors who had put money into FTX about a liquidity shortfall just before rival exchange Binance abruptly withdrew a takeover bid. He said FTX needed $4 billion to remain solvent and was trying to raise bailout funding in the form of debt, equity, or a combination of both, according to a Bloomberg report.
"I fucked up," Bankman-Fried told investors on the conference call, according to people with knowledge of the call, according to Bloomberg. He said he would be "incredibly, incredibly grateful" if investors could help.
It is also still unclear where and how FTX insolvency proceedings could take place. While the company has a subsidiary in the United States, it is incorporated in Antigua and Barbuda and is headquartered in the Bahamas.