Tensions Between Crypto Giants FTX, Binance Spill Into Public View
Spat between Sam Bankman-Fried of FTX and Changpeng Zhao of Binance erupts on Twitter
Tensions between two of the richest men in cryptocurrencies erupted into open warfare on Twitter over the weekend, transfixing much of the digital-currency world.
On one side is Sam Bankman-Fried, the founder of crypto trading firm Alameda Research and FTX, a crypto exchange that has been growing in size and recognition the past two years. On the other side is Changpeng Zhao, the founder of Binance, the largest crypto exchange by volume.
The two digital asset entrepreneurs, known by their initials SBF and CZ, are both celebrities in the crypto industry, amassing hundreds of thousands of followers on Twitter.
In the past, their relationship has remained largely civil, at least in public. That changed Sunday after Binance said it was poised to sell a chunk of FTX’s own cryptocurrency and the CEOs exchanged pointed barbs on social media.
The catalyst: A CoinDesk report from last week that indicated that much of Alameda’s balance sheet was made up of FTX’s token, known as FTT. FTT is a relatively illiquid token with a market capitalization of about $3 billion as of Monday, according to crypto data provider CoinGecko. Investors are concerned that any large selling orders of FTT could cause the token’s price to plummet, potentially harming the financial health of FTX as well.
Mr. Zhao said via Twitter that his exchange would liquidate its FTT holdings for “risk management” purposes. Binance is a former equity investor in FTX and received roughly $2.1 billion worth of FTT and stablecoins when it exited that position last year, Mr. Zhao said. Binance had about $580 million worth of FTT tokens on its books as of Sunday, he said.
“We gave support before, but we won’t pretend to make love after divorce. We are not against anyone. But we won’t support people who lobby against other industry players behind their backs,” Mr. Zhao tweeted Sunday.
Mr. Bankman-Fried shot back Monday, saying Binance was trying to go after its rival “with false rumors.”
The 30-year-old billionaire was hailed as a savior of the crypto industry this summer after he stepped in to buy large stakes in troubled crypto lenders BlockFi and Voyager Digital at a discount during the recent months of market carnage.
He has also welcomed greater regulation of crypto, traveled repeatedly to Washington to meet officials and donated more than $39 million to federal campaigns in the current election cycle, according to OpenSecrets.org.
Meanwhile, Binance has been the subject of U.S. regulatory inquiries, including by the Securities and Exchange Commission and the Justice Department, The Wall Street Journal has previously reported. It was hit with a series of warnings from governments around the world last year over offering unregistered crypto products, prompting the firm to expand its compliance team.
Some of Mr. Bankman-Fried’s past remarks about Binance have irritated Mr. Zhao, a person close to Binance said. In a July 2021 interview with a crypto publication, Mr. Bankman-Fried responded to a question about Binance’s regulatory difficulties by stressing FTX’s cooperation with regulators and saying: “When you don’t do that, and when you sort of appear less flexible or responsive, I think that’s more likely to lead to cases where regulators might feel like they have no choice but to start bringing the hammer.”
In October, Mr. Bankman-Fried posted a tweet questioning whether Mr. Zhao was allowed to go to Washington, D.C. Mr. Bankman-Fried deleted that tweet Monday.
Binance has previously declined to comment on the regulatory probes but has said that it works with regulators around the globe and takes compliance seriously.
FTX experienced an increase in withdrawals after Binance announced the plan Sunday to offload its FTT holdings. Mr. Bankman-Fried said on Twitter his crypto exchange had processed billions of dollars of transactions. FTX’s Twitter account said it was “churning through” bitcoin withdrawals. The exchange has also had more than $450 million in stablecoin outflows over the past seven days, according to crypto research firm Nansen.
On the surface, the spat had little effect on the value of FTX’s token, which traded near $22 apiece on Monday. It’s possible that Alameda, as one of the largest market makers for FTT, helped support the price, said Clara Medalie, the head of research at crypto data provider Kaiko.
Financial documents released last year show that Binance Capital Management Ltd. held a 19.7% stake in FTX’s parent company, FTX Trading Ltd. The documents were released as part of a review of FTX’s plan to acquire the naming rights to the arena where the NBA’s Miami Heat play.
Later in 2021, Binance divested its equity stake in FTX after Mr. Bankman-Fried’s company opened itself up to venture-capital investors such as Sequoia Capital and SoftBank Group Corp. Binance took part of the proceeds of the sale in the form of FTT tokens, a cryptocurrency issued by FTX that is designed to give its investors a stocklike stake in the exchange.
FTX periodically supports the price of FTT by spending a portion of its trading-fee revenue to repurchase and “burn”—or permanently destroy—FTT tokens.
“They’re probably doing cost-benefit analysis right now as to what issues that may cause [if the token falls] and what level they should maintain,” said Ms. Medalie.
But it caused ripples under the market’s surface. The dollar amount dedicated to perpetual futures tied to FTT, called open interest, rose to about $226 million, more than double its level Sunday, according to data provider Coinglass. A sharp rise in open interest likely means that the cost of holding a short position has risen, though that data typically lags, Ms. Medalie said. Both could be a sign that investors are ramping up bets against the token.
On Twitter, Mr. Zhao seemed to compare potential risks associated with Alameda and FTX to that of the collapsed cryptocurrency Luna earlier this year. The coin’s plummet not only burned individual investors but blew holes in the balance sheet of Three Arrows Capital and other crypto companies.