Is Binance CEO Taking Elon Musk Approach to Buying FTX

Is Binance CEO Taking Elon Musk Approach to Buying FTX

If you don't like them - Buy Them; Is this the new moto of the tech billionaires? Changpeng Zhao "CZ", CEO of Binance and Sam Bankman-Fried (SBF) CEO of FTX have been feuding on social media for a few moths now. The fued reached a tipping point when according to CZ, Sam crossed the line by lobbying against Binance to US regulators. 

“We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs,” CZ wrote on Twitter, in an apparent reference to recent calls for more crypto regulation by SBF, who is also one of the biggest campaign donors in U.S. politics. 

Brief Background on Binance on FTX:

Binance came on the seen in 2017 and quickly became the largest and possibly the most influential player in the crypto exchange industry, valued at over $300 Billion. When FTX came around, Biance was an earl investor in the firm. FTX grew exponetially and whilst both CZ and SBF built their empries outside the reach of regulator, SBF became heavily engaged with regulators and U.S. politics. 

What Triggered the FTX Acquisition? 

Recently, SBF's other venture company Alameda Research had it's balance sheet leaked and showed that it held large positions in FTX. Accordin to CZ, this was a red flag on the financial health of FTX and made the decision to liquidate its FTT holdings, the native token of FTX exchang, which it had received as part of an exit from the firm last year. The liquidation worth about $580 million in FTT, led to spooked investors and led FTT to plummet. FTX did not have the liquidity to cover the call for $580 Million, which led to SBF, reaching out the Binance for help.

“This afternoon, FTX asked for our help,” tweeted Zhao “CZ” Changpeng on Tuesday. “There is a significant liquidity crunch. To protect users, we signed a non-binding [letter of intent] intending to fully acquire http://FTX.com and help cover the liquidity crunch.”. But that's not it, CZ continued that, “There is a lot to cover and will take some time,”. He continued, “This is a highly dynamic situation, and … Binance has the discretion to pull out from the deal at any time.”

According to different industry analysts:

“Binance is the immediate trigger, but FTX should resolve its relationship with Alameda. FTX cannot carry on its existing ownership structure with Alameda. FTX needs to completely ring-fence itself and potentially shut down the Alameda prop trading business. If Alameda’s trading operations impact FTX’s customer confidence (perception of Alameda trading against users on FTX and Alameda’s state of finances), then there is more downside to running Alameda than otherwise,” a Bernstein analyst wrote in the note.

“I’m actually shocked by this,” an industry executive told CNN Business. “FTX failing … would be kind of like a Lehman Brothers event for the space. But if they have been successfully bailed out, then that would probably head things off at the pass.”

What Happens Next?

The firms haven’t disclosed the financial terms of the deal, but it's not bad news for FTX investors as the firm was valued at $32 billion in a Series C financing round earlier this year. In the mean time, SBF has stated that FTX is working on clearing the withdrawal backlog, “This will clear out liquidity crunches; all assets will be covered 1:1. This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle etc. — we apologize for that,”.