The Three "Gangster" Strikes by the Founder of Binance that took FTX down.
This saga reads more like a gangster's playbook than the normal cut and thrust of high stakes business because the Three Strikes that took FTX down were all deliberate moves by the Founder of Binance.
In early 2023, Binance had 55% market share of all crypto exchanges globally. Things move quick in Crypto and by December 2023, their share had dropped to 30%.
Despite this decline, Binance remained the largest cryptocurrency exchange globally in terms of 24-hour daily trading volume.
While Binance was always the bigger player, FTX was a formidable number two in the industry. (Emphasis on the “was”)
FTX had a larger profile, actively lobbying and donating to the US government and running extensive advertising campaigns like Don’t be like Larry David and Tom Brady I’m in. This made it seem like everyone was trading crypto with FTX, enhancing its “legitimacy”.
However, FTX's collapse revealed a massive fraud by its Founder involving billions of dollars. He went to jail.
Binance's founder, an early investor in FTX, played a crucial role in this downfall. (He also went to jail on account of massive fraud in his own company).
Changpeng Zhao (Binance Founder)
Changpeng "CZ" Zhao, the founder of Binance, faced significant legal troubles in 2023.
He pleaded guilty to charges related to failing to maintain an anti-money laundering program. This plea deal was part of a broader settlement with U.S. authorities, including the Department of Justice, the Commodity Futures Trading Commission, the Office of Foreign Assets Control, and the Financial Crimes Enforcement Network.
As part of the settlement, Binance agreed to pay $4.3 billion in fines, while Zhao personally paid a $50 million penalty and resigned from his role as CEO. He was subsequently sentenced to four months in federal prison.
Sam Bankman-Fried (FTX Founder)
Sam Bankman-Fried, the founder of FTX, faced even more severe consequences.
After the collapse of FTX in late 2022, which revealed a massive shortfall in customer funds and significant mismanagement, Bankman-Fried was charged with multiple counts of fraud, money laundering, and conspiracy.
In 2023, he was convicted and sentenced to 25 years in prison for his role in the financial misconduct that led to FTX's bankruptcy. This collapse had a substantial impact on the cryptocurrency market and led to extensive legal scrutiny and financial losses for many investors
In doing this research I came across a great image on social media (I failed to find the original source, so thank you to whomever that is) which I thought I would share below.. just for some additional context given the two front covers of Forbes above.
Previously I have written about the Three Strikes (of baad luck) that took a multi-billon dollar listed corporate and a hopeful scale up down.
Today, let’s see what were the Three Strikes (of deliberate competitor action) that took FTX down.
Strike One: A strategic investment and deliberate roadblock
The Binance founder was an early investor in FTX, and had a 20% stake.
He then blocked the growth of FTX by refusing to make discolours to European regulators, forcing a buyout of his 20% stake for $2.1B, mostly in cash, partly in FTX’s own coin, FTT.
Strike Two: The deliberate token unload
The second move in this orchestrated takedown was the sudden announcement by Binance to sell off its holdings in FTT, FTX's native token.
As FTT prices tumbled, rumours and reports about FTX's liquidity issues began to circulate. Much of FTX’s balance sheet value had just been used to buy back the 20% that Binance owned and most of the rest was based on holding their own FTT coin, on their own balance sheet, which as now de-valued.
Binance's founder subtly amplified these reports on social media, hinting at FTX's financial instability without direct accusations.
Strike Three: The acquisition offer (a feigned olive branch)
In a twist worthy of a crime drama, Binance's founder offered to acquire FTX, presenting it as a move to stabilise the crypto market and save FTX's customers from potential losses.
This offer, quickly accepted by FTX, was swiftly withdrawn citing “concerns uncovered during due diligence.”
This sealed the fate of FTX.
The Aftermath: Market Dominance
With FTX out of the picture, Binance solidified its position as the undisputed leader in the cryptocurrency exchange market globally.
This market consolidation allowed Binance to set the tone for the industry's future direction with minimal opposition… but also gave regulators the ammunition they needed to do what they did. About time.