A Failed FTX-Binance Deal Is ‘Catastrophic’ for Crypto Sector

Betting on Sam Bankman-Fried (SBF), the once-beloved posterboy and “white knight” of crypto was supposed to be safe. But recent events have shown that’s far from the truth.

Following on the heels of the Terra ecosystem collapse, the Celsius insolvency and the Three Arrows Capital blow up, the crypto industry fell into even greater turmoil this week after SBF’s crypto exchange FTX was forced to seek a bailout amid liquidity issues. While a non-binding deal with competitor Binance stemmed the panic for a short time Tuesday, things took an even darker turn after CoinDesk Wednesday morning reported that Binance was highly unlikely to go through with its proposed acquisition. By late Wednesday afternoon, Binance itself confirmed that the deal is off, sending crypto markets plunging even further, with bitcoin (BTC) sinking below $16,000 for the first time in two years.

Unless another buyer is waiting in the wings, Binance’s exit from the acquisition likely seals the fate for FTX, and with that, trust in the crypto industry will further decline from both retail and institutional investors.

“A lot of normal users will lose their money, so this will be catastrophic for the ecosystem in the short-term,” said Jay Jog, co-founder of Layer 1 blockchain Sei Network. “There will be degraded confidence in crypto in the short term, both from an institutional standpoint and from a retail standpoint,” he added.

That sentiment was echoed by SmartBlocks Founder Mark Fidelman, who told CoinDesk, “If the deal between FTX and Binance doesn't happen, we'll need to see another major player step in like Coinbase to bail them out. Otherwise, trust will further erode in the crypto market and we'll all suffer for at least 6 months to a year.”

“This also sets back our industry as far as growth and trust across other industries that are looking to support and get involved with crypto and it will also affect other players in the crypto space that have assets tied and connected to FTX,” said Dan Edlebeck, head of ecosystem at Sei Network.

Read more: Who Still Has Exposure to FTX?

However, it may not be a total exodus for institutional investors as they already have a large presence into the sector. “Whatever the outcome is, I don’t think it will lead to institutional investors significantly pulling money from the sector,” said Kevin March, co-founder of cryptocurrency prime brokerage firm Floating Point Group. “Anyone that is here right now, is here to stay … We’re still having conversations with institutions who are interested and trying to figure out how to enter the space this week despite the backdrop,” he added.