Beleaguered cryptocurrency platform FTX filed for bankruptcy protection Friday, in the wake of rival Binance backing out of a plan to acquire it. CEO Sam Bankman-Fried resigned from his position, but will remain to assist with an orderly transition to successor John J. Ray III.
The company's troubles entered the public eye last weekend, The New York Times reported, after Binance founder Changpeng Zhao questioned the stability of its business in a series of tweets.
On Tuesday, Binance signed a letter of intent to acquire FTX. However, Binance's CEO noted at the time that its rival faced a liquidity crunch. Binance said on Wednesday it won't proceed with the deal.
"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," Binance tweeted.
Binance's decision came after the company reviewed FTX's books and structure. "In the beginning, our hope was to be able to support FTX's customers to provide liquidity, but the issues are beyond our control or ability to help," Binance said, adding "we believe in time that outliers that misuse user funds will be weeded out by the free market."
FTX would continue to operate normally during this period, Bankman-Fried assured customers, but that changed Thursday when a message on the exchange said withdrawals can't be processed and advised clients not to initiate any deposits.
Bankman-Fried told investors he needs $8 billion to avoid a shortfall from withdrawal requests by customers, according to The Wall Street Journal. The amount appears to be closer to $9.4 billion to rescue the exchange, Reuters reported Thursday. So far, $1 billion has come from crypto-token Tron founder Justin Sun, another $1 billion from OKX crypto exchange, $1 billion from crypto firm Tethers and $2 billion from investment funds.
Bankman-Fried posted a Twitter thread Thursday apologizing multiple times for the current state of his company and saying he's going to raise liquidity.
The price of bitcoin dropped Wednesday in part because of the news of the second-biggest crypto exchange facing a financial crisis. Bitcoin dropped to just over $16,000, the lowest the cryptocurrency has been since late 2020. It rebounded Thursday after a lighter-than-expected inflation report and hovered below $17,000 on Friday.