• The Reasons behind FTX and Binance’s Split

  • Binance, an early investor in FTX, has abandoned its investment, which you may have missed despite reports this week that the cryptocurrency exchange had raised $900 million in the largest ever funding round for a crypto exchange.

    In many (different) interviews, FTX CEO Sam Bankman-Fried and Binance CEO Changpeng “CZ” Zhao both attempted to portray the split as ordinary and unremarkable.

    But, really, come on.

    The move, according to CZ, is “part of a typical investment cycle.” In a lengthy interview, Bankman-Fried stated, “Given the importance that our companies play in the industry, I believe it is only natural. It may also provide us with additional flexibility in the future.”

    When asked about Binance’s recent run of regulatory issues, Bankman-Fried responded with the following statement: “It’s been a flurry of activity. I’m not privy to their discussions with regulators, so all I can do is speculate, but one thing I can say is that we strive very hard to be as cooperative as possible with them… When you don’t do that, and you appear less flexible or responsive, I believe it’s more likely to lead to situations where regulators feel they have no choice but to start wielding the hammer.” He later said, “I believe there are certain distinctions in the way we conduct our company. I believe there are a number of ways I would have reacted, responded, and handled the situation differently.”

    To disassociate his company from Binance, Bankman-Fried is being careful not to indicate he bought out Binance’s shares. As a result, I’ll do it for him: that’s the obvious reason.

    In recent weeks, Binance has been under fire from a number of agencies, including those in the United Kingdom, Italy, Japan, and the Cayman Islands. As a result, a number of banks and payment processors have stopped allowing customers to send money to Binance.

    Rival crypto exchanges, on the other hand, suddenly see an opportunity to play nice (or at least appear to want to play nice) with regulators. Coinbase, Kraken, and Gemini “have a plan to beat Binance: play by the rules,” as a Businessweek report put it earlier this month. And it was before FTX purchased Binance’s stock. (Hedge funds are also pulling away from Binance, according to the Financial Times.)

    Binance, like every other exchange, claims that it has no issues with regulators. In May, CZ told me, “Everyone assumes Binance doesn’t want to comply with US legislation or any regulations.” “However, that is just incorrect. Binance is, in my opinion, the most compliant cryptocurrency exchange in the world.” (Please don’t laugh.)

    Binance definitely profited handsomely from its FTX investment. “Obviously they did fairly well,” Bankman-Fried says, and CZ tells us, “We’ve seen amazing growth from them, we’re quite thrilled with that.” FTX was founded only two years ago and is already valued at $18 billion. As FTX and Binance become more competitive, they’re more likely to appear as adversaries than pals. (Coinbase Ventures, on the other hand, was a part of the $900 million round.)

    As the market matures and all of the major exchanges compete for clients while negotiating the necessary evil of regulation, it appears that the other exchanges are “all in this together,” whereas Binance is increasingly standing alone, an island unto itself.

    What's your reaction?