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Crypto giant Binance drops bid to save rival, wreaking havoc on digital assets

New York
CNN Business

In an abrupt reversal, cryptocurrency exchange Binance pulled out of a deal to acquire its embattled rival FTX, saying the company’s problems were “beyond our control or ability to help.”[ads1];

Binance, the world’s largest crypto exchange, said it was reviewing FTX’s finances as part of its due diligence process, and it cited reports of “misappropriated customer funds and alleged US agency investigations” when it announced the deal was off.

The reversal is the latest twist in a dramatic and fast-moving saga involving the crypto world’s most powerful players.

It also marks a stunning fall for Sam Bankman-Fried, the 30-year-old industry rock star who founded FTX in 2019. Bankman-Fried, known to insiders as SBF, regularly drew comparisons to investment icons such as Warren Buffett and JP Morgan as he constructed a series of bailouts for struggling crypto firms earlier this year. He has appeared in ads alongside celebrities such as Gisele Bündchen, part of a campaign to bring crypto into the mainstream.

Without a bailout, FTX is poised to collapse, along with the rest of Bankman-Fried’s vast crypto empire.

According to the Wall Street Journal, Bankman-Fried told investors on Wednesday that he needs emergency funding to cover a shortfall of up to $8 billion due to withdrawal requests received in recent days.

Virtually all digital assets fell on Wednesday over the turmoil on FTX.

Bitcoin dipped below $16,000, its lowest level in two years, after Binance confirmed it would not buy FTX. The cryptocurrency has fallen more than 75% from its all-time high near $69,000 a year ago. Ether, the second most popular token, fell around 13% to $1,137 – also down more than 75% from its all-time high.

Representatives for Binance and FTX did not immediately respond to requests for comment on Wednesday.

Even for assets known for their volatility, it’s been a brutal week.

The FTX saga escalated over the weekend, when Binance CEO Changpeng Zhao said his company would liquidate its holdings in FTX as speculation swirled about the company’s financial health. Essentially, it forced a capital requirement of $580 million that Bankman-Fried did not have the liquidity to meet.

Despite the bad blood between Bankman-Fried and Zhao, the rivals appeared to come together on a deal that stunned the crypto world on Tuesday, when Binance said it would acquire FTX pending due diligence.

Still, investors were worried about the deal coming together and quickly sold digital assets of all kinds.

According to Bloomberg, the meltdown of FTX is already under investigation by the Securities and Exchange Commission and the Commodity Futures Trading Commission. The outlet reported that regulators are investigating whether FTX handled customer funds properly, citing people familiar with the probe.

An SEC spokesperson said the commission does not comment on the existence or non-existence of a possible investigation.

The CFTC declined to comment.

—CNN Business’ Matt Egan contributed to this article.

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