Binance Global Inc.’s plan to acquire embattled rival exchange FTX.com may raise antitrust red flags as Binance is already the world’s largest cryptocurrency exchange and now set to get even bigger.
Binance chief executive officer, Changpeng Zhao, known in the industry as CZ, said the firm had offered a non-binding letter of intent to purchase FTX.com after the Bahamian-based crypto exchange ran into a cash crunch when the the price of its native token FTT plunged 75% in a matter of days.
Binance is by far the largest crypto exchange by trading volume, and the acquisition of another large competitor could raise monopoly concerns, said Zach Martin, anti-trust specialist and counsel at Kresslin Law Group.
It is “probably the biggest antitrust development that has happened in the space so far,” Martin said, adding that while FTX.com runs crypto exchanges for non-U.S. residents, that won’t deter regulators.
“These are global markets; U.S. regulators would see through this shell game they’re playing with,” he said, pointing out that plenty of U.S. based customers would use virtual private networks (VPNs) to conceal locations. “This is not something that’s going to be able to avoid U.S. merger review.”
Martin said there is a long road ahead for the deal if Binance does choose to pursue it.
“Both the Federal Trade Commission and the Department of Justice have pretty aggressive heads right now, and especially in the tech space,” Martin said. “So, I would be very surprised if the deal goes forward and it’s not scrutinized very highly.”
FTX’s woes drove down cryptocurrency prices across the board as transactions on the exchange were frozen and its own native token FTT plunged over 75% to $5.43.
Bitcoin fell more than 10% to a low for the year of US$17,603 on Wednesday morning in Asia trading. It traded at $18,894 as of 5:20 p.m. in Hong Kong.
Lachlan Feeney, chief executive officer and founder of Australian blockchain development agency, Labrys Group Pty, told Forkast that FTX’s brokerage arm Alameda Research began selling large quantities of its cryptocurrency reserves to try to contain the collapse in FTT.
Many of these reserves were in SOL, the native token of the Solana blockchain, which is why its losses were among the heaviest in the market. Solana fell more than 37% to US$17.90 in the 24 hours to 5:25 p.m in Hong Kong
Some in the industry are not only concerned about the deal going through but also the nature of how it came about.
Feeney at Labrys Group said he does not believe the run on the FTT token would have happened when it did or with the severity it did had Zhao not sent tweets on Sunday announcing Binance was selling its FTT holdings.
“CZ basically with a single tweet, bankrupted a $30 billion company, which is also his biggest competitor and is now going to go and buy that previously yesterday $30 billion company today for pennies on the dollar and basically eliminate one of his largest competitors,” he said.
“So absolutely, if there was ever a case for antitrust laws and preventing monopolies from forming in all of these sorts of things, then this is like a textbook case,” he said.
Gracy Chen, managing director of cryptocurrency exchange Bitget, said in a tweet she doubted Binance will succeed in acquiring FTX, adding that even if it does, it’s not good for the cryptocurrency industry.
“Even if [Binance] buys FTX, it’s harm to [the] industry and a humiliation to decentralization. For [Binance], it might be a short-term victory written into a case study, but will backfire in the long term.”
However, Feeney said it’s better for the industry if the deal goes through to prevent further losses for retail investors and reduce the risk of financial contagion if FTX were to fold.
The fear of an FTX collapse has drawn comparisons with the multi-billion dollar collapse of the stablecoin project Terra-Luna in May this year, which in turn bankrupted cryptocurrency lending platforms exposed to Terra-Luna.
The sudden turn of events that reversed the fortunes of FTX shows again the need for better regulation, Jeff Yew, chief executive officer of Australia’s Monochrome Asset Management, told Forkast via email.
“Because regulation for crypto exchanges are still in [their] early formative stage or completely absent in most places, there is no way of detecting poor risk management from the outside,” he said.
“All in all, I hope we can all play our parts in shaping healthy regulation that puts all investors first. We know it’s coming anyway.”