It’s been a tumultuous few days in the largely unregulated cryptocurrency world, with mudslinging on Twitter, a shock exchange takeover bid and plunging token values.

The world’s biggest exchange, Binance Holdings, is now set to acquire troubled rival FTX.com in what would be a radical consolidation of power in the crypto world. The letter of intent is non-binding though, which sent jitters through the market and sparked a further plunge in values. While crypto might seem like a niche corner of finance, the saga between two of its top players has upended the crypto ecosystem and is likely to have far-reaching repercussions.

What are Binance and FTX?

They’re two of the biggest crypto exchanges, which are the marketplaces where investors buy, sell and store tokens. Binance is the biggest crypto exchange by volume by a long way – and FTX is in the top five, according to crypto data provider CoinMarketCap (which is owned by Binance). 

Who runs them?

They’ve also been led by two of the most visible and charismatic people in the crypto world: Binance by Changpeng Zhao (or CZ, as he is known), and FTX by Sam Bankman-Fried (or SBF).

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Formerly a trader at Jane Street, until just a few weeks ago the curly-haired 30-year-old was everywhere in the crypto industry – backing flailing projects including BlockFi, Voyager Digital and Celsius. He counts the likes of Softbank Vision Fund, Singapore wealth fund Temasek, Ontario Teachers’ Pension Plan, hedge fund Tiger Global Management and Lightspeed Venture Partners as investors. 

Zhao is a China-born Canadian citizen who emigrated to Vancouver aged 12 and graduated with a degree in computer science from McGill University in Montreal. He started Binance in 2017 in Shanghai – but the Chinese government banned crypto exchanges the same year. He’s now based in Dubai.

Why did they fall out?

Back in 2019, Binance invested in FTX, then a derivatives exchange. The next year, Binance launched its own crypto derivatives, quickly becoming the leader in the field.

Tensions rose as the two companies increasingly took divergent tacks with regulators. Bankman-Fried was testifying in the US Congress, while Binance was said to be facing regulatory probes around the world.

The two companies have also been competing for assets, with both bidding for assets of Voyager Digital – an auction that FTX.US won.

Zhao and Bankman-Fried have been trading barbs on Twitter for months, feuding over issues ranging from lobbying US politicians to allegations of frontrunning trades.

So what just happened in the crypto world?

Over the weekend Zhao tweeted that Binance would be liquidating its holdings of a token known as FTT, which is issued by FTX.  

The tweet followed a story from crypto news outlet CoinDesk saying that Alameda Research, a trading house owned by FTX’s founder Bankman-Fried, had a lot of its assets in FTT token. 

That fuelled broader concerns about FTX’s health and investors began to withdraw money. The FTT token plunged 72 per cent on Tuesday and was falling again on Wednesday. A day before reaching a deal, Bankman-Fried said on Twitter that assets on FTX were “fine” and that “a competitor is trying to go after us with false rumours.”

What does this mean for the markets?

It’s injected a lot of uncertainty for investors. Even with the deal announcement, crypto price movements may make things tough. Bitcoin fell briefly to its lowest level since 2020, which leaves a lot of holders under water.

And then there’s Solana, which is backed by Bankman-Fried and fell 23 per cent on Tuesday. 

What does this mean for Binance and FTX users?

Both CZ and SBF said on Twitter that the deal was done to protect users, though the exact terms are unclear. There have been no announcements from Binance about what will happen to FTX accounts. Customers are unlikely to be happy about the declines in token prices.

How does this affect CZ and SBF?

This deal effectively makes CZ the top person in the crypto world – if he wasn’t already. And it’s a huge comedown for SBF, who had previously been seen as one of the most accomplished people in the industry.

That’s playing out in fortunes, as well. Bankman-Fried’s 53 per cent stake in FTX was worth about US$6.2 billion before Tuesday’s takeover, according to the Bloomberg Billionaires Index, based on that fundraising round and the subsequent performance of publicly traded crypto companies. His crypto trading house, Alameda Research, contributed US$7.4 billion to his personal fortune.

The Bloomberg wealth index assumes existing FTX investors, including Bankman-Fried, will be completely wiped out by Binance’s bailout, and that the root of the exchange’s problems stemmed from Alameda. As a result, both FTX and Alameda are given a US$1 value. That leaves SBF’s net worth at about US$1 billion, down from US$15.6 billion heading into Tuesday. The 94 per cent loss is the biggest one-day collapse ever among billionaires tracked by Bloomberg.

CZ has had a rough period as well, with his fortune down 83 per cent year-to-date according to the Billionaires Index – but he’s still estimated to be worth US$16.4 billion.

What does this mean in terms of regulation?

This episode and how quickly it unfolded provide a stark example for regulators who have been concerned about the lack of guardrails in the freewheeling crypto space. Jurisdictions that have been considering looser rules may be less likely to do so – especially on the back a few months ago of implosions in the Terra/Luna ecosystem and hedge fund Three Arrows Capital.

In addition to general crypto regulation, the deal itself may draw scrutiny given it’s between two of the top players in the space and could trigger concerns about market dominance of a combined entity.

What’s Next?

It’s a bit unclear. Since the Binance agreement to buy FTX is non-binding, a lot of different things could happen. Binance could take over FTX, walk away entirely or perhaps acquire portions of it. And it isn’t even clear whether FTX would continue to exist as a separate entity. Some of this may depend on what Binance actually finds as it works on the due diligence, too.

FTX and Bankman-Fried’s influence is arguably even bigger than that of Three Arrows Capital, whose collapse set off a wave of pain across the industry just months ago. So the lack of details surrounding the FTX buyout, and the swiftness with which it was put together, put the crypto world on edge.

Some of FTX’s investors found out about the deal on Twitter, according to people familiar with the matter. These investors are uncertain whether they will receive any money if the agreement with Binance goes through. BLOOMBERG