Billionaire Sam Bankman-Fried's FTX is on the verge of collapse after Binance walked away from its plans to acquire the crypto exchange.
This comes a day after Changpeng Zhao, Binance CEO, declared that they had reached a non-binding deal to buy FTX's non-US businesses. He attributed the u-turn to "issues" beyond Binance's control or ability to help.
"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," Zhao said. "Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market."
Speculations are that "mishandled customer funds and alleged U.S agency investigations" prompted Binance to back off its plans of acquiring FTX. The company's fall has prompted the US Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) to investigate the crypto exchange for wrongdoing – how it managed customers' money before the liquidity crunch.
Sam Bankman-Fried Down to $1 billion
The FTX founder who spent about $40 million on Democratic candidates for the U.S midterm elections is now down to $1 billion after suffering a sudden liquidity crunch. Sam Bankman-Fried was worth $16 billion earlier this week, but lost 94 percent of his fortune, marking the biggest wealth collapse a billionaire has ever taken in a single day.
He had intended to sell FTX to rival firm Binance to relieve a severe liquidity crunch but it deal didn't surface as planned. According to Bloomberg, Bankman-Fried's 53 percent stake in FTX was worth $6.2 billion and his fortune from Alameda Research, his crypto trading house, was worth another $7.4 billion. On and off crashes in the crypto world has become a norm, particularly for 2022.
Now, the 30-year-old has been left with a $6 billion hole in his balance sheet.
According to the Wall Street Journal, Bankman-Fried told investors that FTX is facing a shortfall of up to $8 billion from withdrawal requests and needs emergency funding. On Monday, he had tried to assure investors that the company's assets were fine. Moreover, there are reports that FTX had projected its net income in 2022 to drop to $144 million, down from $338 million in 2021, while revenue was projected to rise $1.1 billion from $1 billion last year.
As for now, FTX needs a cash infusion to accommodate customer withdrawal requests. In January, FTX was valued at $32 billion in January 2022. The company had been one of the largest and most viable crypto exchanges buoyed by high-profile partnerships with athletes, teams and sports leagues.