Holy hell...what just happened?? It looks like Binance is buying out FTX.
"You either die bailing companies out, or live long enough to see yourself get bailed out." - Harvey Dent Sam Bankman-Fried (SBF).
Ok. This is huge.
Remember yesterday when we said there were two potential situations playing out with FTX's money problems:
Everything is actually fine and SBF is just trying to calm everyone's nerves.
Everything is fine for now, but if everyone keeps freaking out and pulling their money from FTX, the fear could become contagious and lead to the company being bled dry.
Yeah, well - option 2 just played out.
And to stop the bleeding, FTX halted all withdrawals on their platform.
...this ain't a red flag, it's deep crimson banner - one that typically marks the beginning of the end for a trading platform.
And with that, Binance have swooped in and signed a non-binding letter of intent to buy FTX.
Here's a full timeline of nitty gritty details that lead up to this point:
A few weeks back SBF upset a lot of people in the crypto industry, by suggesting regulatory frameworks that, if enacted, would have done some real damage to many in the crypto space (Binance included).
If it were anyone else suggesting these regulations, they would have been flamed in the comments, and that would have been about it...but SBF is a major political donor and has the ears of many politicians.
Unfortunately, for those that opposed him, they couldn't do much but debate his ideas and (hopefully) get him to revise his position.
...at least that was the case, until Nov 2 - when Coindesk revealed FTX's venture arm, Alameda Research, was in precarious financial situation.
(We don't want to jump down a conspiracy rabbit hole here, but we will say this: the timing of this leak was very convenient).
It showed that FTX had taken out a bunch of loans, off the back of their own FTT token...a token that could be easily manipulated (with the right amount spending power).
Spending power that Binance had - and then some.
Armed with this new information, Binance CEO Changpeng 'CZ' Zhao, would have had two options:
Choose kindness and help FTX out, by offering them a loan to help sure up their cash reserves.
Choose violence, topple FTX - then offer to buy them out.
CZ chose violence.
He did so by publicly announcing Binance's intent to sell a bunch of FTT tokens - which they then did.
This move made quick work of crashing the price of the FTT token, which encouraged others to follow suit - in turn, sending FTX into a death spiral of unmanageable debt, to the point that they were forced to halt withdrawals.
And this sort of contagious distrust is very very hard to come back from.
...so when Binance offered FTX a life raft, it really was their only option.
(How convenient).
From the outside looking in, it looks like that's how it was orchestrated.
Publicly - things are staying amicable, with SBF releasing a statement on Twitter, saying:
"Things have come full circle, and FTX.com's first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for FTX.com (pending DD [due diligence] etc.)."
A sentiment CZ mimicked, tweeting:
"This afternoon, FTX asked for our help.
There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch.
We will be conducting a full DD in the coming days."
Is this sharky behavior on Binance's part? Yeah, you could say that.
We'd sooner call it a Godfather move: making them an offer they can't refuse.
But in hindsight, this eventuality was probably inevitable...
The moment those leaked documents showed the world that this kind of manipulation was possible, it essentially triggered a countdown until someone actually acted on it.
We saw the same with Luna (someone pointed out a flaw, the Luna team ignored it and said it was fine - someone then put the theory to the test).
So...what could happen next?
Honestly, it's anyones guess...but here's ours:
Binance look at FTX's books, like what they see, and buy them out.
Binance see no way of saving the sinking ship that is FTX, and rescind their buyout offer.
...causing a chain reaction of insolvencies across each of the crypto companies currently being kept afloat by FTX and Alameda Research.
Let's all join hands, light some candles, murmur an incantation or two, and pray to our respective gods that Binance like what they see.
