Binance to Acquire FTX: What It Means for Customers

If the deal goes through, it could protect FTX customers and their investments.

It's been another surreal week in the crypto world. After a very public spat and rumors that FTX has liquidity problems, today the CEOs of Binance and FTX issued joint tweets that the two crypto powerhouses had reached an agreement. "To protect users, we signed a non-binding LOI, intending to fully acquire http://FTX.com and help cover the liquidity crunch," said Binance CEO, Changpeng Zhao, also known as CZ.

How the Binance-FTX deal unfolded

Not so long ago, FTX CEO and founder Sam Bankman-Fried was offering to buy up failing crypto companies for the good of the industry. Indeed, FTX.US recently won an auction to buy the assets of bankrupt crypto lender Voyager. Now, it seems that we instead need to add FTX to the list of failing crypto businesses.

It all started last week when a CoinDesk article sparked concern that Bankman-Fried's trading firm, Alameda Research, was overly reliant on FTX's native token, FTT. This raised fears that Bankman Fried's crypto empire might be built on shaky foundations. Still smarting after the collapse of the Terra ecosystem, FTT holders -- including Binance -- acted to protect themselves and sell their holdings. Things came to a head Tuesday, Nov. 8, when news reports suggested FTX had stopped processing withdrawals.

Hours later, Binance announced it would buy FTX. "This afternoon, FTX asked for our help," tweeted CZ. "There is a significant liquidity crunch."

Bankman-Fried echoed this. "Things have come full circle, and http://FTX.com's first, and last, investors are the same: we have come to an agreement on a strategic transaction with Binance for http://FTX.com (pending DD etc.)," he said. Bankman-Fried also stressed that customers would be protected.

Binance will still need to do its due diligence, but in principle, the world's biggest crypto exchange is about to get even bigger. Binance's native token Binance Coin (BNB) initially rose sharply on news of the deal, but has since fallen. Many top cryptos have fallen over 10% in the past 24 hours as FTX's woes shook investor confidence in the crypto market overall.

What it means for customers

In theory, the deal won't impact US customers as FTX.US and Binance.US are separate entities. Bankman-Fried said that FTX.US's withdrawals are "operating normally" and that the exchange is "fully backed 1:1."

However, if you are an FTX.US customer, you might consider moving your crypto funds to an external crypto wallet or another exchange. When other platforms struggled earlier this year, leaders repeatedly reassured clients that their funds were safe right up until the point that they froze withdrawals. At that point, it was too late.

If you are an international FTX customer, there's a good chance your funds will be safe -- as long as the Binance deal goes through. But there are no guarantees. I was able to withdraw some funds from FTX today, but other customers had problems earlier in the day. If you're not convinced by Bankman-Fried's assurance that your fund will be protected, take steps now to at least try to withdraw your crypto.

Wanting to keep your cryptocurrency on the exchange where you bought it is understandable, especially if you're new to the crypto world. You can often gain higher staking rewards, you don't need to pay withdrawal fees, and you don't have to navigate the sometimes challenging path of opening your own crypto wallet.

However, one of the powerful aspects of cryptocurrency is that you don't need to rely on any centralized bodies. There is a steeper learning curve and there are risks associated with becoming your own bank. There's no handy "forgotten password" button for a start. But if you compare keeping assets on a crypto exchange that's struggling with liquidity versus the challenges of managing a wallet, a crypto wallet could be the lesser of two evils.

Bottom line

There's a common slogan in the crypto world of "Not your keys, not your crypto." The idea is that if your crypto assets are on a centralized exchange and you don't control the keys, you don't fully own your crypto. In the event of a platform hack or failure, your funds could be at risk. This year has shown us that crypto platforms can and do collapse.

Binance's commitment to buy FTX could protect FTX customers and their assets. But a letter of intent is only a start and we don't know for sure that the deal will go through or what will happen to customer assets when it does. Whatever exchange you use, one way to protect your funds is to keep them in a wallet that you control. If you don't yet have one, check out our guide to the best crypto wallets for more information.