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| Binance Pulls Out of Deal to Acquire Rival Crypto Exchange FTX | Binance Pulls Out of Deal to Acquire Rival Crypto Exchange FTX |
| (32 minutes later) | |
| The cryptocurrency exchange Binance has pulled out of a deal to save its rival FTX, a blow to investors who had hoped that the agreement would help them retrieve funds after FTX collapsed this week. | The cryptocurrency exchange Binance has pulled out of a deal to save its rival FTX, a blow to investors who had hoped that the agreement would help them retrieve funds after FTX collapsed this week. |
| Binance said in a statement on Wednesday afternoon that its decision was “a result of corporate due diligence.” | Binance said in a statement on Wednesday afternoon that its decision was “a result of corporate due diligence.” |
| The deal’s collapse could put billions of dollars held by thousands of FTX customers at risk, a startling implosion for a company that just days ago was considered one of the most stable corners of the unruly world of crypto investments. The uncertainty around the future of FTX has become the most existential threat to young crypto businesses as they struggle to convince Wall Street, regulators and mainstream consumers that they are trustworthy. | |
| It also represents a fall from grace for FTX’s chief executive, Sam Bankman-Fried. Over the last two years, the 30-year-old entrepreneur gained a reputation as one of the wisest figures in crypto. | |
| Mr. Bankman-Fried built FTX into a $32 billion company. He spent hundreds of millions of dollars to prop up other struggling crypto companies. And he became a major political donor to Joseph R. Biden Jr.’s presidential campaign as well as a frequent, welcome presence in the halls of Congress. | |
| Then, in a matter of days, it was Mr. Bankman-Fried who needed the bailout. | Then, in a matter of days, it was Mr. Bankman-Fried who needed the bailout. |
| “This episode highlights the vulnerability of the entire crypto edifice,” said Eswar Prasad, a Cornell University economics professor. “Even large and apparently financially solid institutions turn out to have fragile and shaky foundations that crumble at the least hint of trouble.” | |
| Many of crypto’s foundational myths have already been punctured this year, and Mr. Bankman-Fried’s rapid fall suggests that no company in this freewheeling, loosely regulated industry is safe from extreme volatility. As news spread of FTX’s collapse, crypto markets took a battering, with Bitcoin and Ether both dropping more than 15 percent since Tuesday. | |
| Mr. Bankman-Fried had said on Tuesday that he planned to sell his suddenly struggling company to Binance, an archrival. But Binance, without providing details, said concerns over reports “of mishandled customer funds” and unconfirmed investigations by U.S. regulators had prompted it to back out of the deal. | |
| “Every time a major player in an industry fails, retail consumers will suffer,” Binance said in its statement. “We have seen over the last several years that the crypto ecosystem is becoming more resilient, and we believe in time that outliers that misuse user funds will be weeded out by the free market.” | “Every time a major player in an industry fails, retail consumers will suffer,” Binance said in its statement. “We have seen over the last several years that the crypto ecosystem is becoming more resilient, and we believe in time that outliers that misuse user funds will be weeded out by the free market.” |
| FTX declined to comment on Binance’s pullout from the deal. In a Slack message to employees viewed by The New York Times, Mr. Bankman-Fried said: “I’m working, as quickly as I can, on next steps here. I wish I could give you all more clarity than I can. I completely understand if you want to step away, and don’t blame you at all for it.” | |
| Mr. Bankman-Fried fell at the hands of Changpeng Zhao, the chief executive of Binance, the only crypto exchange bigger than FTX. After reports circulated that one of Mr. Bankman-Fried’s other businesses was on shaky financial footing, a Twitter post by Mr. Zhao, who is known online as CZ, essentially started a bank run that crippled FTX. On Tuesday, Binance announced that it had agreed in principle to buy its biggest competitor. | |
| “CZ executed a pincer movement,” said Lee Reiners, a crypto expert who teaches at Duke University Law School. “He surprised all of us.” | |
| Unlike some other crypto companies that have imploded this year, FTX was almost mainstream. Mr. Bankman-Fried ran a commercial during the Super Bowl and bought the naming rights to the Miami Heat’s basketball arena. He was profiled in virtually every major news outlet, including The Times, and has nearly a million followers on Twitter. | |
| “It’s like if the person you thought was Hermione actually turned out to be Voldemort,” the crypto journalist Laura Shin tweeted on Wednesday. | |
| As the company collapsed, FTX’s venture investors were in the dark about Mr. Bankman-Fried’s plans, and employees had little guidance. Other companies distanced themselves. “There can’t be a ‘run on the bank’ at Coinbase,” Alesia Haas, that U.S. crypto exchange’s chief financial officer, wrote in a blog post. “We hold customer assets 1:1.” | |
| In a note to Binance employees that was posted on Twitter, Mr. Zhao said FTX’s demise “is not good for anyone in the industry.” | |
| “Regulators will scrutinize exchanges even more,” he wrote. “Licenses around the globe will be harder to get.” | |
| This is a developing story. Check back for updates. | This is a developing story. Check back for updates. |