The Alpha:

• On Tuesday morning, FTX CEO Sam Bankman-Fried Tweeted that his crypto exchange had reached a deal with Binance to protect customers amid a liquidity scare.
• The sentiment was echoed by Binance CEO Changpeng Zhao, who Tweeted that the company had signed a non-binding Letter of Intent to fully acquire FTX.com in the near future.
• Zhao also noted that the situation is “highly dynamic” and that Binance has the discretion to pull out from the deal at any time.

Why it matters

On the morning of Tuesday, November 8, FTX CEO Sam Bankman-Fried and Binance CEO Changpeng Zhao confirmed that Binance is seeking to acquire FTX. Taking to Twitter, both executives noted that the move stems from an FTX liquidity crunch, which has resulted in a lack of cash or easily convertible to cash assets on hand for FTX to disseminate to its customers.

While this merger of crypto exchange giants might come as a surprise to some, considering Bankman-Fried and Zhao’s complicated past, it will likely create major ripples throughout the blockchain ecosystem as the recent market downturn continues to affect every level of the $1 trillion crypto industry. This news also comes only a few days after Zhao announced Binance’s plan to liquidate its remaining FTT token holdings, a move that now seems to be somewhat connected to the acquisition.

Although financial terms have not been disclosed in this deal, both FTX and Binance have seemingly already taken action to help protect FTX customers.

“Our teams are working on clearing out the withdrawal backlog as is. This will clear out liquidity crunches and all assets will be covered 1:1,” Bankman-Fried stated via Twitter. “This is one of the main reasons we’ve asked Binance to come in. It may take a bit to settle and we apologize for that.” Bankman-Fried noted that FTX.us and Binance.us are two separate companies and are not currently impacted by this deal.

A liquidity crunch, also called a liquidity crisis, often occurs when various asset markets freeze up, making it significantly difficult for businesses to sell off their stocks and bonds. This current crunch being experienced by FTX is likely due to the recent waning of crypto and stock prices, which has created an increased demand for liquidity from FTX users, that cannot be met by the company’s current supplies. Liquidity crises often lead to mass defaults and even bankruptcies, meaning that this recently announced deal with Binance could truly be a lifesaver for FTX.

“This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI (Letter of Intent), intending to fully acquire FTX and help cover the liquidity crunch,” Zhao stated via Twitter. “We will be conducting a full DD (due diligence) in the coming days.” Zhao went on to note that Binance has the discretion to pull out from the deal at any time.

What’s next

It’s important to note that, although Binance has already signed an LOI, Zhao has continued to mention the flexibility of this new deal. As previously mentioned, Binance still has the ability to pull out of this deal at any time, as the conditions are non-binding This very well may turn into a “wait and see” situation, with an air of unease considering the animosity shared between both parties in recent days.

Yet, the significance of an acquisition this large cannot be understated. Just as Elon musk’s $44 billion Twitter purchase has continued to cause ripples throughout the social media landscape, the high-profile nature of both Binance, which is estimated by some valuations to be worth over $300 billion, and FTX, valued at around $32 billion, will undoubtedly shake up the crypto market by a degree.

For now, the burden of responsibility seems to still lie with FTX, as the company endeavors to ensure customer satisfaction while mitigating the current liquidity crunch.

This story was developing and will be updated.

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