Targeted Takeover? CZ’s FTX Rescue Coincides With Midterms

The unexpected election day truce between crypto exchanges Binance and FTX might be enough to overshadow voting-related volatility as shifting digital asset regulation comes into focus, analysts said Tuesday. 

When Binance CEO Changpeng “CZ” Zhao announced tentative plans on Twitter to acquire rival exchange FTX, cryptocurrencies posted a swift turnaround — a bounce analysts were not anticipating ahead of midterm election results. 

“There is a definite agenda on the Republican side for crypto legislation, there’s shovel-ready bills ready to go,” said Nic Carter, general partner at Castle Island Ventures, on a Blockworks Twitter Spaces. “And I’m certain that this will focus on the spot [markets,] the centralized exchanges, primarily because that’s how the government knows how to regulate.” 

The acquisition — which is pending due diligence and settling on terms — comes after FTX CEO Sam Bankman-Fried, known for his cozy political relationships with US politicians and corresponding campaign donations — drafted his own proposal for crypto legislation that was presented by US Sens. Debbie Stabenow and John Boozman in September. 

With senators and representatives up for reelection, progress on advancing any legislation has been stalled in recent months, and the crypto industry in particular has been increasingly uncertain about where Tuesday’s results might leave the space. 

The bill was not well received by the DeFi community due to its definition of “digital commodity” and other proposed rules. As of Tuesday, the industry was not optimistic about the future of the bill. 

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Kevin March, co-founder of digital assets trading platform Floating Point Group, told Blockworks that Binance “created a run on the bank [for] FTX,” dubbing CZ’s public move to sell the market maker’s FTT tokens a precursor to a “targeted hostile takeover.” 

FTT is the native token for FTX, which powers transactions on the exchange and comes with associated diminished trading fees. 

“This event could certainly accelerate US market regulation as institutions push for a better alternative now that there’s been so much consolidation,” March said. 

As regulatory issues remain unsettled, the industry largely is still taking the pending merger as a net-positive, according to Leah Wald, CEO at digital asset fund manager Valkyrie Investments. 

“Rumors of liquidity issues at FTX have been circulating for a bit now, but the speed at which this transaction has come together is surprising, even in the wake of FTX reportedly pausing withdrawals earlier today,” Wald said. “Binance stepping in to apparently shore up FTX’s balance sheet and ensure customers are made whole is a testament to the resiliency of the industry as a whole.”

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