Binance plans to buy cryptocurrency exchange FTX: Why is FTX facing problems?

Binance, the largest cryptocurrency exchange in the world, intends to buy cryptocurrency exchange FTX, which is currently the world's fifth-largest exchange in terms of daily transactions. The takeover will be part of a strategic deal to save FTX from a liquidity crisis. The problem is that FTX is in danger of bankruptcy as users of the exchange have been withdrawing their funds from the platform en masse in recent days.

What kind of problems is FTX facing?

The cryptocurrency exchange FTX itself turned to Binance for financial support due to the company's liquidity problems, Binance CEO Changpeng Zhao announced this on Twitter, while FTX federal director Sam Bankman-Fried confirmed this information.

Interestingly, the problems FTX is facing are directly related to Binance. They began when the head of Binance accused the competitor of committing fraud related to FTT tokens issued by the FTX exchange. Binance then began selling these tokens and many others followed suit, causing the price of these assets to drop from $22 to $14.2.

Users then began withdrawing their funds from FTX: they withdrew over $6 billion in the last three days, leaving the company with a liquidity shortage. FTX was forced to stop users' withdrawals and requested help from Binance.

"This afternoon, FTX asked for our help. There is a significant liquidity crunch. To protect users, we signed a non-binding LOI, intending to fully acquire FTX.com and help cover the liquidity crunch. We will be conducting a full DD in the coming days," the Binance CEO wrote on Twitter.

The financial terms of the deal are not yet known, but it is assumed that it will not affect FTX US and Binance US, which are separate companies.

Prior to signing a strategic agreement with Binance, FTX was looking for other sources of investment and had plans to raise $10-20 billion to stabilize its financial situation. Why this was not done and why Binance decided to take it over is still unknown.

How does the Binance deal affect FTX?

The news about Binance buying FTX platform led to a 20% increase in the price of FTT token (up to $17.50 per cryptocurrency). However, the rate soon fell to a low of $2.56. At the time of publication, the rate was $5.02 (with the price dropping 68.78% in one day).

Recently, the prices of many other cryptocurrencies have also fallen sharply. For example, bitcoin is now worth $18,107 (down 9.6% in one day).

The cryptocurrency exchange FTX in the last 24 hours held transactions worth $3.6 billion. There are 321 cryptocurrencies and 511 cryptocurrency pairs traded on this platform. Moreover, FTX is currently considered to be the exchange with the lowest commission.