The move comes a day after Binance, one of the world’s largest cryptocurrency exchanges, temporarily agreed to buy FTX after suffering a liquidity crunch. “As a result of corporate due diligence, as well as recent news regarding mismanagement of client funds and alleged investigations by US agencies, we have decided not to pursue the potential acquisition of FTX.com,” Binance said in a statement late. Wednesday. Bankman-Fried told investors on Wednesday that FTX needed up to $8 billion in funding after being inundated with withdrawal requests from customers as its deal with Binance looked certain to collapse, according to two people familiar with the matter. The shift came as the Securities and Exchange Commission expanded an investigation into FTX, which includes looking into the platform’s cryptocurrency lending products and management of client funds, according to a person familiar with the matter. Wall Street’s top regulator started the investigation months ago, but sent additional requests for information after Binance announced on Tuesday it would buy FTX amid a liquidity crunch, the person added. The agency is also looking into FTX’s relationship with an American entity, FTX US. The Commodity Futures Trading Commission was also investigating the company, Bloomberg reported. The SEC and CFTC declined to comment. FTX did not immediately respond to requests for comment on the regulatory investigations. Bitcoin and other crypto-related assets have fallen sharply over the past two days as traders worry about the possible collapse of FTX, one of the largest crypto trading venues, and Alameda Research, a major digital asset trading firm that is controlled also from Bankman -Fried. Bitcoin, the most traded cryptocurrency, lost more than 14 percent below $16,000, its lowest level since late 2020. Solana, a coin that counts Alameda as a major backer, fell 44 percent, while shares in US-listed crypto exchange Coinbase fell 9.5%. Coinbase declined to comment. “The markets have now hit panic,” said Jon de Wet, chief investment officer at crypto wealth manager Zerocap. “All hell is breaking loose.” On Wednesday afternoon, Sequoia Capital told its investors that it had zeroed out its stake in FTX. The California-based venture capital firm invested $213 million in FTX companies in 2021 across two of its funds. A fundraising round in October of that year valued FTX at $25 billion. “We’re in the business of taking risk,” Sequoia said in its letter to investors. “At the time of our investment in FTX, we performed a rigorous due diligence process.” FTX had about $1 billion in revenue and more than $250 million in operating income in 2021, Sequoia said. The collapse of the short-lived deal between Binance and FTX comes months after high-profile failures of once-prominent crypto groups, including lender Celsius Network and hedge fund Three Arrows Capital. Bankman-Fried gained a reputation as a crypto savior amid the turmoil, backing struggling companies including lender BlockFi. The latest phase of the cryptocurrency sell-off is more worrisome because “the number of entities with stronger balance sheets that can bail out those with low capital and high leverage is shrinking in the crypto ecosystem,” JPMorgan said in a note on Wednesday. FTX earlier acknowledged that it was unable to meet customer withdrawal requirements without external capital. “It’s bad for FTX customers, they have money trapped in FTX and they can’t get it out,” said Jim Bianco, president of Bianco Research, a consulting firm. Binance CEO Changpeng Zhao reached an agreement to buy FTX and freeze customer deposits after just a few hours of negotiations on Tuesday, after Bankman-Fried sought help from his former investor-turned-rival. “Before this, I had very little knowledge of the internal state of affairs at FTX,” Zhao said in a memo to his staff on Wednesday. Recommended The Binance boss had hoped to prevent more customers from suffering losses after this year’s string of high-profile failures that have shaken confidence in the industry. It also wanted to prevent a chain reaction of damage to companies exposed to FTX and Alameda through lending or trading positions. “Initially, our hope was to be able to support FTX customers in providing liquidity, but the issues are beyond our control or ability to assist,” Binance said. “Anytime a major player in an industry fails, retail consumers will suffer.” Additional reporting from Tabby Kinder in San Francisco
