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 agreeing to buy the FTX exchange in which he was an early investor.
On Wednesday, CZ Zhao 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 deal, said to be made in the coming days, has rocked the crypto industry with its market cap down over 10% in 24 hours according to CoinMarketCap.
According to some industry experts, only one winner has emerged from the unexpected development and that is CZ, who is walking away with 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, she added.
“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 FTT 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 that Binance’s acquisition of FTX can be seen as a win for Binance is that Binance had already cashed out on its 2019 investment in the exchange, according to D’Anethan. When withdrawing the investment from FTX last year, the company received a sum of FTT tokens, according to CZ.
CZ decided to announce Binance’s 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 is the source of CZ’s “new revelations,” which led him to want to sell FTT as a security measure, while others believe CZ intended to crash FTX all along. 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, CV 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 right into CZ’s hand, D’Anethan says he does not expect the crypto industry 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 they were divested from FTX. There were concerns about FTT’s financial stability, and it was in CZ’s own right to cash out of his investment and sell to whoever would want to buy the token, according to D’Anethan.
“The other perspective is it was 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 play out a bit more violently in crypto markets because we’re still rather unregulated or a lot freer than traditional finance.”
A lot remains to be seen about the deal and how it develops. It is possible that the deal will not go through or that regulators will block the merger. But for now, it seems that Binance has managed to cash out on its early investment in FTX while assuming its exchange and the mantle of market consolidator.
See related article: Binance’s pending acquisition of FTX may attract attention of antitrust regulators