In a sharp reversal, cryptocurrency exchange Binance has pulled out of a deal to acquire rival FTX, saying the company’s problems were “beyond our control or ability to assist.”
Binance, the world’s largest crypto exchange, said it had reviewed FTX’s finances as part of its due diligence process and cited reports of “mismanagement of client funds and alleged investigations by US agencies” in announcing that the deal had been cancelled.
The reversal is the latest twist in a dramatic and fast-moving saga involving the most powerful players in the cryptocurrency world.
It also marks a stunning fall for Sam Bankman-Fried, the 30-year-old industry rock star who founded FTX in 2019. Bankman-Fried, known to insiders as SBF, has regularly drawn comparisons to investment icons such as Warren Buffett and JP Morgan as it planned a series of bailouts of troubled crypto companies earlier this year. It has appeared in advertisements alongside celebrities such as Gisele Bündchen, part of a campaign to bring crypto into the mainstream.
Without a bailout, FTX is poised to collapse, along with the rest of Bankman-Fried’s massive crypto empire.
According to the Wall Street Journal, Bankman-Fried told investors on Wednesday that it needs emergency financing to cover a shortfall of up to $8 billion due to withdrawal requests it has received in recent days.
Almost all digital assets sank on Wednesday due to the FTX turmoil.
Bitcoin sank below $16,000, its lowest level in two years, after Binance confirmed it will not buy FTX. The cryptocurrency is down more than 75% from an all-time high near $69,000 a year ago. Ether, the second most popular token, fell about 13% to $1,137 — also down 75% from its record high.
Representatives for Binance and FTX did not immediately respond to requests for comment on Wednesday.
Even for assets known for their volatility, it’s been a brutal week.
The FTX saga escalated over the weekend when Binance CEO Changpeng Zhao said his company would liquidate its holdings in FTX as speculation swirled about the company’s financial health. Essentially, this forced a $580 million capital call that Bankman-Fried did not have the liquidity to cover.
Despite the bad blood between Bankman-Fried and Zhao, the rivals appeared to come to an agreement that stunned the cryptocurrency world on Tuesday when Binance said it would acquire FTX pending due diligence.
However, investors were concerned about the deal and immediately sold off digital assets on all sides.
According to Bloomberg, the FTX collapse is already under investigation by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The agency said regulators are investigating whether FTX handled customer funds properly, citing people familiar with the investigation.
An SEC spokesman said the commission does not comment on whether or not there is a potential investigation.
The CFTC declined to comment.
—CNN Business’ Matt Egan contributed to this article.
