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Binance agrees to buy rival FTX in major crypto shake-up

The deal comes as FTX says it was facing a liquidity crunch

FTX CEO Sam Bankman-Fried, left, and Binance CEO Changpeng Zhao. (Jeenah Moon/Bloomberg News)

The world’s largest cryptocurrency trading platform said Tuesday it has agreed to buy FTX, a once-stalwart rival suddenly facing a destabilizing stream of customer withdrawals, in the latest bout of turmoil to rock the industry this year.

Binance CEO Changpeng Zhao said on Twitter that the deal came together rapidly to “protect users.” The deal, whose value was not revealed, stunned crypto watchers because FTX had for months been the one to bail out other struggling crypto businesses.

FTX chief executive Sam Bankman-Fried, who has emerged during this election cycle as the country’s second-largest Democratic donor and a major force lobbying on Capitol Hill for crypto regulation, said on Twitter that the company is working to clear out a backlog of withdrawal requests. The process “may take a bit to settle,” he said, but pledged that “customers are protected.” FTX was valued at $32 billion in a fundraising round at the beginning of the year.

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Digital assets have shed roughly $2 trillion over the last year, or two-thirds of their value. And news of FTX’s sale spawned a new round of selling: Bitcoin, the largest cryptocurrency, was trading down by more than 10 percent on Tuesday afternoon, while ethereum, the second-largest digital token, had sunk 15 percent.

“Confidence is going to be shaken,” Reena Aggarwal, director of Georgetown University’s Psaros Center for Financial Markets and Policy, said in an interview. “FTX was very visible and very large. To have it appear to end so quickly makes people very nervous.”

Even before today’s news, Binance was the gorilla of the crypto exchange market, with 72 percent of total market share, according to an industry trade publication. It facilitated more than $35 billion in trades each day — nearly 10 times the amount facilitated by FTX or Coinbase, two of its large competitors, according to data from CoinMarketCap.

Zhao noted that Binance still needed to conduct due diligence and retained “the discretion to pull out from the deal at any time.”

Binance has offices all over the world — in the past it has been licensed in the Cayman Islands and Seychelles — though Zhao has declined to say where the private company is based. FTX, also private, is based in the Bahamas.

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A spokesman for Bankman-Fried declined to comment beyond the executive’s Twitter thread on the deal. A spokesperson for Zhao did not respond to a request for comment.

In a letter to investors obtained by independent journalist Eric Newcomer, Bankman-Fried wrote that the details of the deal were still being hashed out and that he would provide updates soon. “I’m sorry I didn’t do better,” he added, “and am going to do what I can to protect customer assets, and your investment.”

The move marks a head-spinning turnabout for FTX and its high-profile CEO. The platform had been considered a powerhouse in the industry, in part thanks to a huge marketing campaign that pitched the exchange as a reliable brand in a volatile sector — recruiting football star Tom Brady and supermodel Gisele Bündchen as spokespeople, affixing its logo to the uniforms of Major League Baseball umpires, and attaching its name to the Miami Heat arena in a $135 million deal. Bankman-Fried personally appeared on billboard ads.

Bankman-Fried, whose net worth was estimated at $15.6 billion by Bloomberg this week, spent the summer casting himself as the savior of a flailing industry — bailing out crypto projects that had gone wobbly after a crash in digital asset prices.

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In recent days, his company has been the one needing a rescue. The trouble started last week when CoinDesk reported that Alameda Research, a trading firm also run by Bankman-Fried, had a significant chunk of its balance sheet tied up in FTT, a crypto token issued by FTX. The revelation raised questions about the interconnectedness of the two firms and whether they would be sound if FTT suffered a major drop.

Zhao also held a large stake in FTT, which he received as part of a payout for an early investment in FTX. But relations between the two founders have soured in recent months, with Zhao and Bankman-Fried taking shots at each other on Twitter over their business and regulatory practices. Bankman-Fried has been the industry’s most active executive in Washington pressing for federal regulations, a debate Zhao has avoided. On Sunday, Zhao announced that Binance would be selling off its FTT, worth roughly $530 million, likening the token to the Terra stablecoin project that collapsed in May and helped precipitate a wider crypto market meltdown.

FTX customers began pulling their investments. On Monday morning, Bankman-Fried tried to calm nerves, writing on Twitter that a “competitor is trying to go after us with false rumors,” while insisting that the platform and its assets were both “fine.” By midnight, FTX had suffered $654 million in net withdrawals over the previous 24 hours, according to analytics firm Nansen.

The takeover thrusts Zhao, with a lower profile among the general public than Bankman-Fried, into the limelight. Zhao, born in China in the late 1970s, spent his teenage years in Vancouver, B.C., after his family moved to North America. He worked in fintech for much of the 2000s before founding Binance in 2017. He quickly grew it into the largest global crypto exchange by volume, aided by a lack of competition and a bull market in its earliest days.

FTX’s bailout could affect retail investment in crypto, experts said. FTX had been more intent than many crypto companies in pushing its message to consumers.

The shake-up also casts into doubt Bankman-Fried’s pursuit of a law to establish the first federal guardrails for the industry. The executive has thrown himself into that mission in recent months, taking frequent trips to Washington to meet with everyone from congressional leaders and top regulators to legislative staffers.

Bankman-Fried backs a bill sponsored by Sens. Debbie Stabenow (D-Mich.) and John Boozman (R-Ark.) that would hand significant responsibility for the industry to the Commodity Futures Trading Commission. He has been pushing lawmakers to adopt it by the end of the year, a timeline that would mean approving it without so much as a hearing in the House.

Rep. Patrick T. McHenry (R-N.C.), who is expected to chair the House Financial Services Committee if the GOP wins control of the chamber, said in a statement that “recent events show the necessity of Congressional action.”

“It’s imperative that Congress establish a framework that ensures Americans have adequate protections while also allowing innovation to thrive here in the U.S.,” he said.

Jeremy B. Merrill contributed to this report.

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