Binance buys FTX amid its lack of liquidity

Key points:

• Binance agreed to acquire rival cryptocurrency exchange FTX.
• The process begins with a report that the balance sheet of FTX was overly reliant on FTT tokens.
• The situation worsened earlier on Tuesday as FTX customers faced difficulties withdrawing funds from FTX.

Binance agreed to acquire rival cryptocurrency exchange FTX, a surprising result after days of speculation sparked by a Nov. 

The deal — revealed in a tweet, like so many others in nearly a week of drama — brought together two crypto trading giants. Earlier this year, FTX was valued at $32 billion, and Binance was the largest cryptocurrency exchange by volume. Financial terms of the deal were not disclosed, although FTX’s U.S. subsidiary — a separate entity called FTX US — was not involved in the transaction.

Sam Bankman, CEO of FTX, said: “The cycle goes back and forth, the first and last investor in FTX.com is the same: we have agreed with Binance on a strategic transaction for FTX.com (pending DD, etc.).” 

Binance CEO Changpeng Zhao also confirmed the deal on Twitter, saying the two exchanges signed a non-binding letter of intent. Both Bankman-Fried and Zhao said full due diligence would begin in the next few days.

The deal follows a report last week that raised concerns that the balance sheet of FTX, a sibling company of Alameda Research, was overly reliant on FTT tokens. Both FTX and Alameda were founded by Bankman-Fried and are primarily owned by Bankman-Fried.

Some observers have interpreted the story to mean that Alameda's financials -- and therefore perhaps FTX's -- are not as solid as thought.

Then on Sunday, the Binance CEO said he planned to sell his holdings of FTT tokens, adding to the pressure as a story suggested that the bulk of Alameda's balance sheet is made up of FTT. "Fixing our financial transaction tax is just learning post-exit risk management from LUNA," he tweeted. "We've offered support before, but after a divorce, we're not going to pretend to have sex. We are not against anyone. But we're not going to support those who are behind the scenes against other industry players. Keep going."

CZ's decision drove down the price of FTT. Alameda CEO Caroline Ellison tweeted Sunday that she will buy all of Binance’s FTT tokens at $22 each to minimize the impact on the price.

The situation worsened earlier on Tuesday as FTX customers faced difficulties withdrawing funds from FTX. Dozens of customers have complained about their difficulties on FTX's Telegram group and on Twitter. Barriers to withdrawals herald the collapse of several other cryptocurrency companies in 2022.

FTX’s FTT token initially rose after the trade, but it didn’t last long; it was the last trading around $5 after opening just under $20.