Binance abandons deal to save rival crypto exchange FTX

Binance will abandon its deal to rescue Sam Bankman-Fried's FTX cryptocurrency exchange, citing concerns about its business practices and investigations by US financial regulators.

The move comes a day after Binance, one of the world's largest crypto trading venues, tentatively agreed to buy FTX after suffering a liquidity crisis.

“As a result of corporate due diligence, as well as recent news reports of mishandled customer funds and alleged U.S. regulatory investigations, we have decided that we will not pursue the potential acquisition of FTX.com,” Binance said in a statement late Wednesday.

The reversal came as the Securities and Exchange Commission expanded an investigation into FTX that included examining the platform's cryptocurrency lending products and its management of customer funds, according to a person familiar with the matter.

Wall Street's top regulator launched the investigation months ago, but sent additional requests for information after Binance announced Tuesday it would acquire FTX amid a liquidity crisis, the person added. The agency is also investigating FTX’s relationship with a US company, FTX US.

The Commodity Futures Trading Commission was also investigating the company, Bloomberg reported. The SEC and CFTC declined to comment. FTX did not immediately respond to requests for comment on the regulatory investigation.

Bitcoin and other crypto-related assets have fallen sharply in the past two days as traders worry about the consequences of a possible collapse of FTX, one of the largest crypto trading venues, and Alameda Research, a major digital asset trading firm also controlled by Bankman-Fried.

“The markets are now in full panic,” said Jon de Wet, chief investment officer at crypto asset manager Zerocap. “All hell breaks loose”

Bitcoin, the most actively traded cryptocurrency, fell 12 percent to $16,282, hitting its lowest level since late 2020. Solana, a coin that counts Alameda as a key supporter, fell 46 percent, while shares of U.S.-listed crypto exchange Coinbase fell 9.5 percent.

Binance's about-face comes after FTX admitted it was unable to meet customers' withdrawal demands without external funds.

Binance Chief Executive Changpeng Zhao reached an agreement to purchase FTX and secure its customer deposits after just a few hours of negotiations on Tuesday, after Bankman-Fried sought help from his former investor-turned-rival.

“Prior to this, I had very little knowledge of the internal state of affairs at FTX,” Zhao said in a memo to his employees on Wednesday.

The Binance boss had hoped to prevent more customers from suffering losses after a series of high-profile failures by crypto firms this year shook confidence in the sector. He also wanted to prevent a domino effect of damage to companies exposed to FTX and Alameda through lending or trading positions.

“Initially, our hope was to be able to assist FTX customers in providing liquidity, but the issues are beyond our control or our ability to help,” Binance said. “Any time a major player in an industry fails, retail customers will suffer.”

Additional reporting by Scott Chipolina