Marketplace is community-funded public service journalism. Give in any amount that works for you – what matters is that you give today.
Prices of bitcoin and other cryptocurrencies are spiraling for a second day as crypto exchange Binance announced it would not be taking over its closest rival, FTX.
The CEO and founder of FTX, Sam Bankman-Fried, is a celebrity in his own right — in crypto circles, anyway. Think a crypto bro with a likable image; a goody two-shoes, even, in the eyes of some Washington regulators, said Laura Shin, host of the “Unchained” podcast and author of the book “The Cryptopians.”
“Sam really was seen as somebody who was trying to bring more regulation to crypto than most crypto people are even comfortable with,” she said.
This spring, as the current crypto winter set in, Bankman-Fried went on a crypto buying spree as weaker companies started to buckle. But when FTX hit a liquidity crunch of its own, it ran into a good old-fashioned run, with users pulling out money and crypto all at once.
Unlike previous crashes — like the one in 2008, for example — this time, “there’s no lender of last resort to step in and stop the hemorrhaging,” said Lee Reiners, policy director at the Duke Financial Economics Center. “The Federal Reserve is not going to provide emergency liquidity to these crypto firms.”
There was really just one institution in the crypto ecosystem — larger rival Binance — with the balance sheet capacity to bail FTX out, Reiners said.
But Binance made clear on Wednesday it won’t be doing so.
“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 FTX.com,” a Binance spokesperson told Marketplace in a statement.
Letting FTX fail could now make hedge funds and other investors think twice, according to Lisa Ellis, senior managing director and research analyst at SVB Securities’ MoffettNathanson. “If they literally lose everything, they might internally establish policies that disallow participation in some of these unregulated exchanges.”
That could leave Binance and perhaps the entire crypto sector in a vulnerable position.
There’s a lot happening in the world. Through it all, Marketplace is here for you.
You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible.
Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.