Binance set to buy FTX

This is an audio transcript of the FT News Briefing podcast episode: ‘Binance set to buy FTX’

Marc Filippino
Good morning from the Financial Times. Today is Wednesday, November 9th, and this is your FT News Briefing.

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Two of the biggest names in crypto are merging. Our correspondent calls it an earthquake of a deal. And TikTok is dealing with a slowing economy and lots of workplace drama.

Cristina Criddle
 . . . Very high turnover, constantly switching strategies, leadership has changing, and it’s kind of chaotic.

Marc Filippino
I’m Marc Filippino, and here’s the news you need to start your day.

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Americans voted yesterday in critical midterm elections. We’re following the results closely. And we’ll have a better idea of the consequences once the outcome is confirmed. Our journalists will join us tomorrow and later in the week to help us understand what this means for the world’s biggest economy. For real-time results, head to FT.com. For analysis, you can read our Swamp Notes newsletter. This week, it’s coming out every day, and it’s free. We’ll have a link to that in the show notes.

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There was upheaval yesterday in the world of cryptocurrency. One of the biggest companies, Binance, agreed to buy its rival, FTX. This deal is going to bail out FTX if it goes through. FTX recorded a record surge in customer withdrawals, which sparked a liquidity crisis. The deal is not inked yet, though. Binance says it still needs to do its due diligence. To find out more, I’m joined by the FT’s Josh Oliver. Hi, Josh.

Josh Oliver
Hey, Marc.

Marc Filippino
OK. So how big of a deal is this?

Joshua Oliver
This is an absolute earthquake for the crypto world. Five days ago, almost anybody in crypto would have told you that FTX was rock solid, one of the strongest exchanges in the crypto world with a huge number of blue-chip investors from BlackRock to Temasek and in a very, very short space of time, this has accelerated to the point where they were in urgent need of essentially a rescue buyout.

Marc Filippino
Does it make you wonder if they were being completely straightforward or forthright in the way that they were presenting the company? Because it seems very odd to me that a company that was so rock solid just a few days ago is now being sold.

Joshua Oliver
There are going to be a lot of difficult questions, not just for FTX, but also for a lot of people who put money into FTX. And I think as the days and weeks go by, people are going to pick over the corpses of how this possibly could have happened. What’s clear is that the immediate cause was a sort of crisis of confidence in the exchange that was triggered by rumours about the balance sheet of their sister trading firm Alameda Research. And that led to effectively the scenario people describe as a run on the bank where they were struggling to meet demands from their customers to have their money back.

Marc Filippino
So I’m not going to lie, it seems like weird timing for Binance or really anyone in crypto to be acquiring another crypto exchange right now. Cryptocurrencies have collapsed this year, and, you know, on the back of the news that we’re talking about yesterday, Bitcoin dropped more than 11 per cent. And, you know, just because of the way the global economy is going, it’s not really a good time for mergers and acquisitions. How does Binance justify growth when the boom times of crypto appear to be over?

Joshua Oliver
We don’t know exactly what Binance is thinking, but you have to think of this from the point of view of a company that is already 100 per cent deep in crypto. This is what they do. And so, you know, they don’t take the same outside perspective that some people would and say crypto looks like it’s on the way down. Instead, I think the ideology inside the crypto world is that when the market is down is the time that you kind of consolidate your business. People will say, you know, they build during downturn and then when the next boom cycle comes as people in crypto predict, they have a solid base laid. So I think they will see this as an opportunity to kind of gather their forces, consolidate and be an even stronger company the next time crypto markets start to surge. But you’re absolutely right, this is a significant risk for Binance to take on, you know, another substantial financial obligation at a time when, you know, business across the crypto industry is slowing. And there’s no guarantee that that next crypto boom that they will be banking on is actually going to come or come any time soon.

Marc Filippino
You kind of nipped it this a little bit, but I’m interested about what this acquisition does to the broader industry. I mean, you’ve now got to two massive companies becoming one.

Joshua Oliver
So this is, you know, significant consolidation of two of the most significant crypto exchanges. But you should see that in the backdrop of there were a lot of crypto exchanges out there and a number of big players. It wasn’t ever clear that there needed to be as many exchanges as there were, and some people have been predicting that exchanges would consolidate. I just don’t think that they imagined that it would happen quite so dramatically.

Marc Filippino
Joshua Oliver is the FT’s asset management reporter. Thanks, Josh.

Joshua Oliver
Thanks, Marc.

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Marc Filippino
The video sharing app, TikTok has slashed revenue forecasts for the year by up to 20 per cent. Like other tech companies, the Chinese-owned app is being hit by a slowing global economy and falling ad revenues. And TikTok’s also beset by management chaos. Our technology reporter Cristina Criddle has been breaking lots of news about TikTok, and she joins me now. Hi, Cristina.

Cristina Criddle
Hi.

Marc Filippino
So is TikTok pretty much in the same situation as other social media companies?

Cristina Criddle
I think we’ve seen social media companies really hurting over the past few weeks. That’s a slump in online spending on both digital advertising but also in things like ecommerce. These TikTok’s two biggest forms of revenue. So it’s not surprising that it’s had to slash its revenue targets. It doesn’t publish results like this. So it’s quite a rare insight into how the business is doing. Now saying that, it’s cut its targets by at least 2bn, but it’s still predicted to make around $10bn this year. And TikTok is by no means declining. It is still growing. It’s just they had very ambitious goals, and they haven’t met those targets.

Marc Filippino
So the US is TikTok’s biggest market for both users and revenue. Can you remind us of what’s been going on in its American operation?

Cristina Criddle
TikTok, although it is a massive company, operates quite a lot like a start-up. So you see big changes to leadership, restructuring happening. It happened in Europe earlier this year, and now it’s happening in the US. And you’re seeing the general manager for North America, Sandie Hawkins, being replaced in her role. She’s now moving to head up TikTok Shop in the US, which is its ecommerce business. And you’re seeing around 20 senior managers getting replaced as part of this. Although the headcount in the US is up overall, hundreds of people have left. Some of its do with redundancies. Some of it has to do with things like burnout or simply personal reasons. But it all gives this impression of very high turnover, constantly switching strategies, leadership has changing, and it’s kind of chaotic.

Marc Filippino
So what about geopolitics, Cristina? I remember back in 2020, the Trump administration threatened to ban TikTok from the US because of security concerns with its parent company, ByteDance. What’s going on there?

Cristina Criddle
Yeah, and I think when that happened, TikTok focused a lot of energy on the UK and Europe just in case it was going to be banned in the US. That’s looking less and less likely. That TikTok is in conversations with the White House. They’re finalising a deal around these security concerns, and that will allow it to keep operating as a company. But that will include some restrictions on how US user data is accessed and stored. TikTok has always maintained that access to data for any users around the world is really restricted, and that yes, engineers in China can access this data, but that’s really strictly controlled.

Marc Filippino
Cristina Criddle is a tech reporter for the FT. Thanks, Cristina.

Cristina Criddle
Thank you.

Marc Filippino
Before we go, Uzbekistan is lobbying the EU to lift sanctions on billionaire oligarch Alisher Usmanov. He’s an Uzbek-Russian dual national and was sanctioned after Russia’s full-scale invasion of Ukraine. Uzbek officials argue the sanctions have restricted the billionaire’s ability to invest some of his fortune in his birth country. The EU does want closer ties with Uzbekistan, but there’s concern that lifting sanctions against Usmanov could open up a debate about lifting sanctions on other Russian oligarchs with dual citizenship.

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You can read more on all of these stories at FT.com. This has been your daily FT News Briefing. Make sure you check back tomorrow for the latest business news.