What Binance’s Axed FTX Buyout Means for the Cryptoverse

its lows falling below seventeen thousand. Earlier this week, after the equivalent of an earthquake jolted the world of digital assets, Finance, the world's largest cryptocurrency exchange, had announced plans to buy out its big rival f t X, which was reportedly facing liquidity crisis and appeared to be on the verge of collapse. But now that deal is apparently off and that's caused a lot more mayhem and turmol in already

battered the cryptocurrency markets. I've called up senior editor An Era, so that we can go over just what happened here. So what's happening now? U S regulators are looking into this um the deal is dead because Bina has pulled out, and now Sam bank Man Freed has sent a major warning out to two investors. Could you talk us through this little bit. Anna, Let's start with the authorities in

the US probing FTX. We had a scoop on Thursday revealing that US authorities, including the Securities and Exchange Commission, we're looking at ft X potentially because essentially there's um they could have been using customer funds in ways that they shouldn't. And then on top of it all, basically we heard that bank man Freed told his investors that he had messed up. So you know, it's kind of all up in the air. Now there's gonna be no

bail out. And here we're talking about one of the biggest crypto firms crypto exchanges, So the potential for contagion is massive, and if it's anything like Tara Tera Luna, it could like we could see those effects rippling through the crypto industry for quite a while because it takes a bit for positions to unwind and and so forth. Um, so we're gonna start seeing, you know, which firms were exposed.

And you know, Sam mcminfried kind of ominously said to his investors, according to our story, that you know, if he doesn't get help, they might have to file for bankruptcy. Yeah, and I think it bears sort of recapping for the listeners. The one of the biggest crypto exchanges in the world. Um, a name that up until just this week was a blue chip name in crypto might now have to file for bankruptcy and they have a shortfall of as much as eight billion US dollars. That's sort of it's it's

hard to overstate the gravity of of that situation. Huh yeah. I mean, you know, if you're if you're one of our listeners, you will have heard this name so many times on this podcast before. Matt also interviewed Sam Bankman Freed SPF as he's known Dam Bankman Free, Sam Bankman Freed, and probably in this context it might be quite chucking.

Maybe you can have your money on FTX right um, and withdrawals have been frozen, and you know, if there's no bailout, who knows who will get their money back and how much of that money will will be given back. So even in other bigger firms are in the same position, which is why I was talking about potential contagion, because if you can't get your money back, what if you have someone else money and so forth, And you know,

it's kind of infinite. So Sam Bankman Freed told his investors he'd missed up and he was asking for for rescue. He said he would be incredibly grateful if investors could help him, and so if they can't, then you know, his firm might not make it and the consequences could be quite dire for everybody who has money on them and the firms that are connected. So it is very serious. It's you know, the latest in implosions in the scripto Winter, but I think it's sort of overshadows all the other

ones we've had so far. And as Phil you were saying, it's partly because we've seen this person over the summer appearing as the the White Night saving everyone else, so that while that was happening, he might have also been in trouble is quite um. It's quite interesting, and and it shows again the extent to which this industry, while it says it is all about transparency, it's quite still opaque.

There's lack of regulation because in many cases it is it is regulation and finance that brings transparency, right because it says you have to tell us what you own and where and where it's dis custody. Then like what your reserves are. You know, we always talk about these firms as exchanges, and I've had you know, sources and market structure people tell me you shouldn't all these exchanges

because they're just trading platforms. Exchanges are regulated, they have rules that says say how many reserves you must have when and how customer funds should be segregated. So, you know, I guess it's all coming to the forefront now, the lack of regulation and so forth. And now as you said, you don't know, I mean, you know they call and exchange, they're not really in exchange. A blue chip name has just sort of said that, you know, very realistically, we

might not make it. Um. Who can you trust in this? In this environment, there must be just this pervasive sense of mistrust throughout the entire cryptosphere right now for sure. I mean, you know, in our line of work, we've we've been speaking to many of these players often, you know, our reporters, ourselves, so already in that sense, it's come

quite as a shock. But imagine if they were your counterparty and you were speaking to them two days ago and doing a trade with them, and all of a sudden you figure out that maybe they were insolvent um. You know that that that that will probably be shocking, and again it calls into question risk management practices, and I think we'll see who you know, who survives will kind of probably I mean, some of it might be luck if you didn't have exposure in that moment, but

maybe you were just being a bit more cautious. And one thing havn't sort of covered Crypto for a while is that these exchange collapses are quite cyclical. It happens, It's happened before um. But you know, I guess Crypto at the beginning was a bit more like edgy and like people are like, oh, it's all dodgy, So it was it was in a way a bit more expected. But now that you know it's come to the mainstream, you have big banks and and people being taken seriously.

SPF was a you know, a big player in Washington, big donor and campaigns. He had like a conference where he had Bill Clinton on stage. Sam bankman Fried was very much in the public eye. He has a big um influence in Washington. He was donating massively to campaigns and you know, he had the Clinton on stage at his conference in a conference where he was sitting next to Bill Clinton, so you know, he's kind of a

public figure. So we've gone from like dodgy crypto anarchists collapsing, which is like, oh, that's their problem, to like someone in the you know, public eye. So it is very much more impactful. I think more on the buyans fd X drama with Anna Rrera coming up right after the break. I want to go back to buying us for a while.

So if we recap this week for buying us, Basically what's happened is here sees it on Sunday, goes out and tweets I'm going to sell our ft T tokens because of recent revelations, and then you know, steps back, chaos unfolds. F t X gets swept away, they get an offer from SPF um by us. Basically they get a full look at SPF presumably, they get a look at FTX books, and then they take a close look

and they see something they don't like. They turn around, walk away, and they now are left with basically full insight into the workings of a competitor, presumably, and that competitor might no longer be around. It's that it's a sort of a fair summary of event. Where does this lead Binance? Of course, if Bitcoin crashes, and that's not great for anyone, But as I said, there's been exchange collapses for years, and what we've seen is like some

players have emerged in a more stronger position. And Binance has been around for quite some time now and they're quite aggressive. So I'm thinking they might be taking advantage of the situation and they might see no influence go up UM and you know, it leaves them in a potentially stronger position, although of course it depends to on what sort of happens to crypto in general. I don't think they had big dealings with UM, you know, like

Wall Street. So if Wall Street gets a bit scared by what's happened, I don't know if that impacts them. But for sure, you know, now one of the biggest retail trading platforms is gone, and so people have to go somewhere else, right, I mean, I can't imagine many crypto traders or people that have traded for a while deciding all of a sudden to sell all of it at a low. That would be I mean, it would be surprising. It might happen, but you know, they'll have

to move their crypto somewhere. Some of it might go in cold storage, but if they want to continue to trading and operate, they'll have to move on another platform. And is it reasonable to to think in this sort of with this chapter not behind us, we're very much still in the midst of it. But with what's played out over this week, is it reasonable to think that institutional investors who were thinking about getting into crypto might just take a look at this and go, wait a minute, Um,

I'm not so sure anymore. I mean, because that was always going to be the sort of what crypto needed after the scandals we've had this year, like more retail or in the institutional participation. So I think there's two interesting things going on. We've seen cryptocurrency firms saying they're having more institutional interests, so institutions going on those platforms. So we've also seen institutions building their own infrastructure and platforms.

So the issue is here is perhaps not whether the asset class is valuable, it's whether the people that are running the asset class are valuable. Right, do we trust the centralized crypto exchanges? Do we trust the big players in crypto? Is a different question, perhaps do we think that bitcoin has any value as an asset, because you could separate the two and say, well, we do still think that there's potential. We'll just set up our own

exchanges well, and we'll do our own thing. We have our own You know, there are many banks that are have their own custody arms, and that will probably make them feel a bit safer because imagine if a crypto custodian collapses, you know that that's really bad, but you know, now you have someone like Bank of New York Melon who's been custodying assets, um many other types of assets

for a while. That might make people feel safer. It doesn't necessarily mean that banks haven't had their own issues in the past, but you know, if you know, maybe if they think we're going to build our own infrastructure, what we might still be doing things. But it will definitely be really interesting to see what they do. I'm

thinking FDx. You know, they were also backed by a pension fund um and Celsius too, so you know, like I don't know how many other pension funds will take steakes in crypto firms going forward, like imminently, Like there's got to be tougher questions being asked by the people behind those funds, right are the stakeholders? It's I think it was a teacher's pension fund from Canada. Again, as we've said before, what what strikes in this crisis is the impact it is having on like all sorts of people.

It's no longer just oh, like crypto fanatics losing their money. It's it's but ventially teachers losing their pensions. I'm not saying this is what's going to happen here because I don't think they invested all of it in FDx, but you know there were institutions that had come in for sure, and you know what if some of them got burned? All right? Thank you, Anna. You can follow this story and all of Anna's reporting on the Bloomberg terminal on

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