FTX came out to report that it was suffering from a liquidity crunch. With the exception of Binance, which expressed interest in acquiring FTX’s non-US operations, a number of businesses began to withdraw from FTX.
Binance’s decision to back out of the deal, citing concerns about its business practices and probes by financial regulators, is a severe blow to FTX.
Binance had the option to withdraw from the previously signed non-binding Letter of Intent between Binance and FTX at any time after undertaking due diligence. Binance has completed the decision-making process, as well as its evaluation of ongoing news reports, and decided that it will not proceed with the acquisition agreement.
As a result of due diligence, news stories concerning the misuse of customer funds, and investigations by financial regulators, Binance has chosen not to pursue the potential acquisition, according to a statement made by the company.
The Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) are the financial regulators who have intensified their investigations. As industry-wide rumors of Binance’s desire to acquire FTX circulated, the SEC strengthened its investigations. The SEC is examining the following aspects:-
- Cryptocurrency lending products
- Management of customer funds
- Relationship with its US entity – FTX US
Investors are equally concerned as withdrawal requests from clients increase. Customers have reportedly expressed concern about being unable to withdraw funds from the FTX exchange due to the liquidity crisis. FTX has, therefore, sought additional funding of up to $8 billion to meet the withdrawal demands. This indicates that the platform requires funds solely to meet withdrawal requests rather than to develop or grow its operations.
The FTX crisis has impacted the cryptocurrency market. Bitcoin was previously expected to rise strongly, but it has now discovered a soft spot at roughly $16,000, with a 14% drop in value. Solana fell 44%, and the market for digital currencies is in full panic mode. According to Zerocap’s Jon de Wet, all hell is breaking loose.
The FTX liquidity situation raises the question of whether other crypto companies should help the exchange platform. Customers’ inability to withdraw funds from the platform has been deemed problematic enough by industry professionals.
JPMorgan has issued a warning over the crypto market, citing the sell-off as a cause for concern due to the diminishing leverage inside the crypto ecosystem.
FTX has stated in the past that it cannot meet withdrawal requests without external funding. Indeed, it was rescued by a leading crypto exchange Binance, but now it has departed the station along with the rest. A customer-centric approach provided a glimmer of hope that FTX would find a solution.
FTX and its customers have taken a hit in the market due to Binance’s decision to abandon the acquisition. Investor funds are FTX’s only hope for meeting withdrawal demands.