Yesterday, Binance CEO Changpeng Zhao (“CZ”) announced a non-binding letter of intent to acquire FTX. Now he says the troubled FTX exchange is “beyond our control or ability to help” – meaning, the deal’s off. Binance confirmed in a tweet that it would not acquire FTX.
FTX faced troubles that included an investigation by Texan securities regulators months before things started coming to a head this week. Despite the investigation, founder and CEO Sam Bankman-Fried (“SBF”) seemed unworried, at least publicly, as he aggressively pursued acquisitions and bailouts. He said FTX had $1 billion that could be used to snap up other companies.
It acquired the bankrupt Voyager Digital and showed interest in adding Celsius Network’s assets during the massive fallout of the TERRA-LUNA collapse in May 2022. While it was uncertain what SBF intended to actually do with them, he did previously own a financial stake in these two companies.
Perhaps he intended to see how much he could prop up as a refurbished asset with new FTX branding. He had previously rebranded LedgerX as FTX US Derivatives after having FTX US acquire it. He also rebranded Blockfolio as the FTX App.
Then Changpeng Zhao announced that Binance was going to liquidate FTX’s native token, FTT. That’s when things started falling apart.
Binance had been an early investor in FTX in 2019, but liquidated its share for $2.1 billion in FTT and BUSD. At first, the relationship between CZ and SBF remained cordial. However, in the wake of SBF publishing a recommendation for crypto regulation, CZ became snippy:
The sharp comment from CZ implies that there was more going behind the scenes than simply SBF expressing an opinion about regulation – something that could be backed up by SBF promoting his intention to donate to Political Action Committees and political campaigns in the United States in a possible attempt to influence crypto policy.
SBF apparently did not donate as much as he said he would during the recent midterm election cycle and backtracked on his promise to donate as much as $1 billion to influence the 2024 presidential election. Considering how much his fortune collapsed this week – from more than $15 billion to less than a billion — he likely couldn’t have afforded to keep up the pace anyway.
It’s going to be tough to bail out this mess.
It’s a good reminder to not get too hyperfocused on billionaires’ net worth, most of which are probably wrapped up in investments that might tank overnight, BTW. FTT isn’t looking so hot right now. A week ago, it was hovering between $25 and $26. Now it collapsed to about $2.30.
That’s going to hurt Alameda Research, too. In June 2022, it had $14.6 billion in assets, including $3.66 billion in “unlocked FTT” and $2.16 billion in “FTT collateral.” It also had $8 billion in liabilities, including $292 million in “locked FTT” that presumably weren’t so easy for it to unload.
Tether distanced itself from FTX despite pumping $36.7 billion in USDT into Alameda Research, most of which got relayed to FTX. Crypto.com, Coinbase, and Genesis Trading also denied having anything to do with FTX.
Sam Bankman-Fried’s crypto empire appears to be collapsing like a house of cards. Changpeng Zhao had previously accused him of making bad deals by bailing out bankrupt companies like Voyager Digital and Celsius Network. Now it looks like CZ has passed on FTX as yet another failing company.