The largest cryptocurrency exchange in the world, Binance, has abandoned a plan to help its smaller rival FTX.
According to Binance, the purchase will not be pursued after due diligence.
It claimed that information about “mismanaged customer funds and purported US agency investigations” had influenced its choice.
A “liquidity constraint” brought on by a spike in withdrawals left FTX in trouble.
Withdrawals totaling $6 billion (£5.2 billion) were reportedly sparked in just three days by worries about FTX’s financial stability.
The US Securities and Exchange Commission (SEC) was reportedly looking into how FTX handled customer funds and its crypto-lending activities on Wednesday, according to the Reuters news agency.
The markets regulator was investigating whether the platform had complied with securities rules regarding the segregation of customer assets and whether it had engaged in customer trading.
The problems FTX was having, according to Binance, were “beyond our control or ability to help,” the company claimed in a statement shared on Twitter.
“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.”
The exchange added that “as regulatory frameworks are developed and as the industry continues to evolve toward greater decentralisation, the ecosystem will grow stronger”.
Sam Bankman-Fried, the creator of FTX, and Changpeng “CZ” Zhao, the CEO of Binance, are two of the most influential figures in the cryptocurrency industry and prominent rivals.
An announcement on its website read: “FTX is currently unable to process withdrawals. We strongly advise against depositing.”
Mr. Zhao, who had tweeted on Sunday that Binance will sell its holdings of FTX’s digital token, known as FTT, contributed to the pressure on FTX. This week, the token has lost about 90% of its value.
Here is the note we sent to our LPs in GGFIII regarding FTX. pic.twitter.com/Cgp1Yxk1pz
— Sequoia Capital (@sequoia) November 10, 2022
On Tuesday, Binance intervened, announcing that it has signed a letter of intent to purchase FTX’s non-US entity. But it also stated that it has “the discretion to terminate the agreement at any moment.”
Earlier this week, Mr. Zhao tweeted: “Sad day. Tried, but [crying emoji]”.
Following Binance’s withdrawal from the agreement, Bitcoin plummeted below $16,000 before recovering some ground, while shares of cryptocurrency exchange Coinbase tumbled by more than 9.5%.
Sequoia Capital, a venture capital firm, announced it will fully write down its more than $210 million investment in FTX since the cryptocurrency exchange is in danger of going out of business.
In a tweet, the business said, “Based on our current understanding, we are marking our investment down to $0.”
According to April Joyner, a Business Insider correspondent based in New York, the issues at FTX might go really worse. She made this statement to the BBC’s Today show.
“If FTX were to go under a lot of people could potentially lose their money depending on what’s going on there,” she said.
“It’s also led to a lot of turmoil on crypto markets – we’ve seen prices of Bitcoin, Etherium etc fall and so there’s a lot of distress and worries about the crypto markets right now.”
A growing number of bitcoin firms have failed as a result of not having enough cash on hand.
As worries about how crypto platforms are trading rise, the SEC and other regulators have been increasing their surveillance of the market, adding to the pressure.
Earlier this year, a BlockFi subsidiary subsidiary agreed to settle charges relating to its retail lending product by paying a record penalty.
