Binance Pulls the Plug on FTX Sending the Crypto Market into Turmoil

Key Insights:

• Binance pulls the plug on the FTX acquisition sending the crypto market into the second day of market turmoil.
• After completing initial due diligence on the deal, Binance cited the mishandling of customer funds and regulatory scrutiny as the reasons to withdraw.
• The crypto market cap is down $118.8 billion to $757.8 billion for the Wednesday session.

On Wednesday, November 9, Binance announced plans to withdraw from the FTX deal. The withdrawal came less than 48 hours after signing a non-binding letter of intent (LOI) to acquire FTX.

Binance covered its bases within the LOI by including the option to walk away after completing due diligence on FTX.

In withdrawing from the deal, Binance stated,

“As a result of corporate due diligence, as well as the latest news reports regarding the mishandling of customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX.com.”

Before the withdrawal, Binance CEO Changpeng Zhao (CZ) tweeted an internal to Binance employees.

CZ warned everyone not to trade FTT, saying,

“DO NOT trade FTT tokens. If you have a bag, you have a bag. DO NOT buy or sell. As soon as I finished the call with SBF yesterday, I asked our team to stop selling as an organization. Yes, we have a bag. But that’s ok. More importantly, we need to hold ourselves to a higher standard than even in banks.”

CZ added,

“FTX going down is not good for anyone in the industry. DO not view it as a “win for us”. User confidence is severely shaken. Regulators will scrutinize exchanges even more. Licenses around the globe will be harder to get. And people now think we are the biggest and will attack us more. We must significantly increase our transparency, proof-of-reserves, insurance funds, etc. A lot more to come in this area. We have a lot of tough work ahead of us. Not to mention prices swinging wildly.”

Crypto Market Cap Loses a Quarter of Its Market Cap in Two Days

With 90 minutes of the Wednesday session (UTC) remaining, the crypto market has tumbled by $118.8 billion to $757.8 billion. Following Tuesday’s $98.3 billion loss, the market has lost one-quarter of its value.

While several exchanges were quick to distance themselves from the FTX collapse on Tuesday, the ramifications will be far-reaching.

SEC Chair Gary Gensler reacted to the collapse of FTX, reportedly saying,

“What we’ve seen in the last two days, if I can sort of step back from it a bit, it’s really part of a pattern of what we have seen over the past six or eight months.”

Gensler went on to say,

“Investors get hurt when we don’t rely upon the time-tested public policy guardrails.”

Adding,

“The investing public is hoping for a better future, and they’re not having it here.”

According to Bloomberg, FTX CEO Sam Bankman-Fried told investors that without a cash injection, the company would need to file for bankruptcy.

At the time of writing, FTT was down 60% to $2.21. On Tuesday, FTT had tumbled by 75%.