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Get ready for a big plot twist. On Wednesday, investors were shocked when the world's largest cryptocurrency exchange, Binance, said it would buy out its rival, FTX, to help it get through a liquidity crunch. But, just 24 hours later, Binance peaced out from the deal after digesting FTX's serious financial woes and probes from US regulators. During this rollercoaster ride, crypto had a big meltdown. Bitcoin fell below US$16,000 to a two-year low, and FTX's token collapsed more than 40%, on top of an over 70% plunge the day before.
FTX was once priced at a US$32 billion private valuation but is now facing its worst crisis. Aside from lacking cash, it's being investigated by US regulators over whether it mishandled customer funds. Officials are also looking into FTX's relationship with founder Sam Bankman-Fried's trading house Alameda Research.
On Wednesday, Bankman-Fried told investors the company might need to file for bankruptcy if nobody stepped in with the cash, according to insiders. So now, he's scrambling for a rescue package of up to US$9.4 billion to save the day.
“I f---ed up,” FTX founder Sam Bankman-Fried told investors on a call, according to people with knowledge of the conversation.
“Our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help,” said Binance in a statement.
“Since I entered the crypto industry in 2016, very few periods tested its market infrastructure and participants like the last 24 hours did,” said Dan Liebau, crypto hedge-fund manager of Modular Asset Management.
“It’s a sign that this is a blow to confidence in the industry as a whole, from the investor’s point of view,” said Noelle Acheson, author of the “Crypto is Macro Now” newsletter. “From the industry’s point of view, it’s also a pretty steep blow, much more so than what we saw with Three Arrows Capital and with the Terra implosion. This is sitting harder.”