Cryptos Tumble On Reports Binance ‘Highly Likely’ To Scrap FTX Deal

Update (1050ET): Following earlier comments from Binance boss CZ, CoinDesk is reporting the crypto exchange is highly unlikley to go through with its proposed rescue of FTX…

SCOOP: @binance is highly unlikely to go through with its proposed rescue of @FTX_Official after glancing at crypto exchange’s books, according to a person familiar with the matter.@IanAllison123 reports.https://t.co/ORh1K9RufB

— CoinDesk (@CoinDesk) November 9, 2022

That headline sparked a new leg down in Bitcoin to a $16k handle..

FTX Token (FTT) is trading back to the lows…

Roughly half a day into the process of reviewing FTX’s internal data and loan commitments has led Binance to strongly lean against completing the transaction, according to a person familiar with the matter.

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With all eyes on what the most powerful man in crypto, Binance CEO Changpeng “CZ” Zhao, will do next now that Sam Bankman-Fried (or rather Bankrun-Fraud) has been exposed as just another Ponzi-running fraudster (read this thread for details on how FTX did everything it could to delay the inevitable implosion of his trading group Alameda), and how long until his “non-binding” agreement to acquire FTX collapses, Bloomberg reports that in a memo to employees, CZ said that there wasn’t a “master plan” to take over FTX.com and the collapse of the rival crypto exchange “is not good for anyone in the industry” (of course he would say that).

“We did not master plan this or anything related to it… It was less than 24 hrs ago that SBF called me. And before that, I had very little knowledge of the internal state of things at FTX,” Zhao wrote in the memo sent Wednesday, which of course is false since Binance – as an existing major investors – had every insight into what was going on and knew precisely what to do to spark a bank run… which it did. Which is also why CZ hedged: “I could do some mental calculations with our revenues to guess theirs, but it would never be very accurate.” In retrospect, they were accurate enough.

Still, knowing that regulators will scrutinize his every decision and comment, CZ continued to plead ignorance: “I was surprised when he wanted to talk. My first reaction was, he wants to do an OTC deal… But here we are.”

Zhao noted that “due diligence for the deal is on-going,” and reminded employees not to trade the FTT token. He also told employees not to comment on the transaction.

“Never use a token you created as collateral . . . Don’t borrow if you run a crypto business. Don’t use capital ‘efficiently’. Have a large reserve,” Zhao tweeted.

Two big lessons:

1: Never use a token you created as collateral.

2: Don’t borrow if you run a crypto business. Don’t use capital “efficiently”. Have a large reserve.

Binance has never used BNB for collateral, and we have never taken on debt.

Stay #SAFU.🙏

— CZ 🔶 Binance (@cz_binance) November 8, 2022

Zhao also said that the proposed – if hardly completed – bailout, which consolidated Binance’s position as the world’s biggest crypto trading venue, was not “a win for us” adding that “user confidence is severely shaken. Regulators will scrutinize exchanges even more. Licenses around the globe will be harder to get.”

The message also laid out the speed of the deal he agreed with his counterpart Sam Bankman-Fried to prevent the total collapse of FTX, which had been valued at $32bn earlier this year. 

The two men shocked the crypto industry when they announced on Tuesday that Binance had agreed to rescue FTX after a surge in customer withdrawals sparked a liquidity crisis after Zhao announced that he was selling a $530 million holding of FTX’s native token. The letter of intent signed is a non-binding agreement. Terms haven’t been disclosed.

In the aftermath of FTX’s near collapse, Binance and other larger exchanges have pledged to publish more proof that they hold their customers’ funds in secure reserves that are readily available to meet withdrawals.

“We must significantly increase our transparency, proof-of-reserves, insurance funds, etc. A lot more to come in this area. We have a lot of tough work ahead of us. Not to mention prices swinging wildly,” he wrote to staff.

The Binance chief also acknowledged that a takeover of FTX, creating by far the largest crypto exchange in the world, would paint a target on the company’s back.

“People now think we are the biggest and will attack us more,” he said.

After it was leaked by the press, CZ posted his full letter on twitter:

In the spirit of transparency, might as well share the actual note, sent to all Binance team globally a few hours ago.https://t.co/IUNkPcLC8T pic.twitter.com/XGlIJB7EV5

— CZ 🔶 Binance (@cz_binance) November 9, 2022