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Binance ditches deal to rescue 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 it suffered a liquidity crunch.

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

The about-turn came as the Securities and Exchange Commission expanded an investigation into FTX, which includes examining the platform’s cryptocurrency lending products and the management of customer funds, according to a person familiar with the matter.

Wall Street’s top regulator launched the probe months ago but sent additional requests for information after Binance announced on Tuesday that it would acquire FTX amid a liquidity crisis, the person added. The agency is also looking into FTX’s relationship with a US entity, 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 probes.

Bitcoin and other crypto-related assets have fallen sharply over the past two days as traders worry about the fallout of a potential collapse of FTX, one of the biggest crypto trading venues, and Alameda Research, a large digital asset trading firm also controlled by Bankman-Fried.

“Markets have now hit full panic,” said Jon de Wet, chief investment officer at crypto wealth manager Zerocap. “All hell is breaking loose.”

Bitcoin, the most actively traded cryptocurrency, shed 12 per cent to $16,282, hitting the lowest level since late 2020. Solana, a coin that counts Alameda as a major backer, dropped 46 per cent, while shares in US-listed crypto exchange Coinbase declined 9.5 per cent.

Binance’s U-turn comes after FTX acknowledged it was unable to meet customers’ withdrawal demands without external funds.

Binance chief executive Changpeng Zhao reached an agreement to buy FTX and backstop its customer deposits following just a few hours of negotiations on Tuesday, after Bankman-Fried appealed to his former investor turned rival for help.

“Before that, I had very little knowledge of the internal state of things at FTX,” Zhao said in a memo to his staff on Wednesday.

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

“In the beginning, 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,” Binance said. “Every time a major player in an industry fails, retail consumers will suffer.”

Additional reporting by Scott Chipolina

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