See related article: What could Binance gain from FTX’s wider investments?
The relationship between two of the world’s largest crypto exchanges has come full circle, with the Binance founder Changpeng Zhao offering to buy the FTX exchange in which he was an early investor.
On Wednesday, CZ announced on Twitter that he signed a letter of intent to acquire Sam Bankman-Fried’s exchange and save it from an ongoing liquidity crunch. The pending deal has rocked the crypto industry, with its market cap falling more than 10% in 24 hours, according to CoinMarketCap.
Some industry experts say that only one winner has emerged from the unexpected development, and that is CZ, with Binance gaining good optics and one of the world’s largest crypto businesses, valued at more than US$30 billion.
In an email to Forkast, Clara Medalie, research director of crypto data firm Kaiko said the acquisition would position Binance as an “absolute behemoth in the industry.”
“The exchange was already the world’s largest before FTX’s liquidity troubles, and should the acquisition go through, it stands to consolidate the vast majority of market activity.” Medalie added that Binance’s trade volumes are already larger than more than 10 of its next closest competitors combined.
“He’s a winner on all fronts,” said Justin D’Anethan, the institutional sales director at Amber Group, a Hong Kong-based digital asset platform, in an interview with Forkast. “A lot of users and funds have already gone from FTX to the safety of Binance, which now looks like one of the more secure platforms and players in the space.”
Having your cake and eating it too
A main reason Binance’s planned acquisition appears to be a major win for CZ is the fact that he has already cashed out on a 2019 investment in FTX, according to D’Anethan. When withdrawing the investment from Bankman-Fried’s exchange last year, the company received a sum of FTT tokens, according to CZ.
The Binance founder decided to announce his intention to dump all the tokens into the market following some investor jitters about Bankman-Fried’s crypto trading firm Almeda Research. Reporting about Almeda’s balance sheet began circulating at the start of the month, claiming that the company’s collateral primarily consisted of FTT-related assets. FTT is the native cryptocurrency of the FTX exchange.
Some experts speculate the balance sheet was the source of CZ’s “new revelations,” which led him to cut ties with FTT as a security measure, while others believe he timed his announcement strategically. CZ has denied any orchestration of FTT’s price decline.
Either way, the news of Binance, the world’s largest crypto exchange, unloading FTT pushed prices of the token down, further highlighting investor concerns about Almeda Research and its connection to FTT and FTX.
“Effectively, CZ pushed the valuation of Almeda and FTX down to the brink of implosion… this gave him the ability to rebuy his prior investment after having already cashed out at a much higher price,” said D’Anethan.
Despite markets taking a hit and everything seemingly playing into CZ’s hand, D’Anethan says he does not expect the crypto space to take much issue with Binance’s actions over the past week.
“A lot of investors understand CZ’s perspective,” he said. The tokens fell into CZ’s lap after divesting from FTX, there were concerns about FTT’s financial stability, and it was within Binance’s right to sell to whoever wanted to buy, added D’Anethan.
“The other perspective is that the announcement came at an opportune moment, and it did put FTT and a lot of users and investors in jeopardy, but I guess a lot of people will conclude that’s just how business is done,” he said.
“Admittedly, you may see that business play out a bit more violently in crypto markets because we’re still rather unregulated and a lot freer than traditional finance.”
A lot remains to be seen about the Binance-FTX deal and how it develops. It is possible that the acquisition will not go through or that regulators will block it. But for now, it seems that Binance has managed to cash out on its early investment in FTX while assuming ownership of its exchange and the mantle of market consolidator.
See related article: Binance’s pending acquisition of FTX may attract attention of antitrust regulators