- Binance walked away from an FTX buyout yesterday having spent just two days examining its books
- The news sent Bitcoin tumbling to $15,800 amid fears of billions being lost
- Why did Binance walk away?
Binance spectacularly backed down from its approach to buy out FTX yesterday after taking a two-day look at the exchange’s books. Following speculation that the proposed deal was already close to collapse, Binance released a statement in which it said a number of factors were behind its decision not to pursue the acquisition, but what were they?
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 https://t.co/FQ3MIG381f.
— Binance (@binance) November 9, 2022
Due Diligence
Binance said that due diligence of FTX’s books, which it conducted over two days, was a factor in them pulling out. This is hardly a surprise given what we know of FTX’s reliance on the FTT token to collateralize its borrowing, and the $6 billion it was trying to raise on Monday to fulfill customer withdrawals, and it isn’t hard to imagine that Binance found some other horrors lurking in FTX’s financial records that will never see the light of day.
Such revelations would back up the comments from Coinbase CEO Brian Armstrong who on Monday said that there were reasons “why that would not make sense” when asked if Coinbase was going to look into acquiring FTX, adding that, “I’m not at liberty to share the details right now…..it’ll all probably come out eventually.”
Allegations of Mishandled Customer Funds
Perhaps the biggest story to come from the FTX blowup was the suggestion that the exchange had been using customer funds to place leveraged trades or to use as collateral to obtain loans. There has been no direct proof of this, although there are a couple of breadcrumbs that lead to such a conclusion, such as FTX halting withdrawals after the price of the FTT token crashed and Sam Bankman-Fried deleted a tweet which said that the company didn’t “invest client assets” and that “FTX is fine.”
This, plus whatever else Binance saw, was enough for the company to say no.
Potential U.S. Investigation
News that the U.S. authorities were considering investigating FTX over the collapse and the misuse of funds, and may have been already looking into it over other concerns for months, may have been the biggest reason why Binance walked away.
The company wants a bigger footing in the U.S., but taking over a company when there’s the possibility that you’re going to have to open up all your books to investigators and potentially be levied with a hefty fine for something you didn’t do will have been enough for them to say ‘no thanks’, never mind the fact that Binance CEO Changpeng Zhao will not want to grant investigators license to look into his affairs.
