Crypto giant Binance drops bid to save rival, stoking chaos in digital assets

New York(CNN Business) In an abrupt reversal, cryptocurrency exchange Binance pulled out of a deal to acquire its embattled rival FTX, saying the company's problems were "beyond our control or ability to help."

Binance, the world's largest crypto exchange, said it reviewed FTX's finances as part of the due diligence process, and it cited reports of "mishandled customer funds and alleged US agency investigations" in announcing the deal was off.

The reversal is the latest twist in a dramatic and fast-moving saga involving the crypto world's most powerful players.

It also marks a stunning fall for Sam Bankman-Fried, the 30-year-old rock star of the industry who founded FTX in 2019. Bankman-Fried, known to insiders as SBF, regularly drew comparisons to investing icons like Warren Buffett and J.P. Morgan as he engineered a series of bailouts to struggling crypto firms earlier this year. He has appeared in ads alongside celebrities like Gisele Bündchen, part of a campaign to bring crypto into the mainstream.

Without a bailout, FTX is poised to collapse, along with the rest of Bankman-Fried's vast crypto empire.

According to the Wall Street Journal, Bankman-Fried told investors Wednesday that he needs emergency funding to cover a shortfall of up to $8 billion due to withdrawal requests received in recent days.

Virtually all digital assets sank Wednesday over the turmoil at FTX.

Bitcoin sank below $16,000, its lowest level in two years, after Binance confirmed it would not buy FTX. The crypto currency has fallen more than 75% from its all-time high near $69,000 a year ago. Ether, the second most popular token, fell about 13% to $1,137 — also off 75% from its record high.

Representatives for Binance and FTX didn't immediately respond to requests for comment Wednesday.

Even for assets known for their volatility, it's been a brutal week.

The FTX saga escalated over the weekend, when Binance's CEO, Changpeng Zhao, said his company would liquidate its holdings in FTX as speculation swirled about the company's financial health. In essence, that forced a $580 million capital call that Bankman-Fried didn't have the liquidity to meet.

Despite bad blood between Bankman-Fried and Zhao, the rivals appeared to come together on a deal that stunned the crypto world on Tuesday, when Binance said it would acquire FTX pending due diligence.

Still, investors worried about the deal coming together and promptly sold off digital assets of all stripes.

According to Bloomberg, the meltdown of FTX is already under investigation by the Securities and Exchange Commission and the Commodity Futures Trading Commision. The outlet reported that the regulators are investigating whether FTX properly handled customer funds, citing people familiar with the probe.

A spokesperson for the SEC said the commission does not comment on the existence or nonexistence of a possible investigation.

The CFTC declined to comment.

—CNN Business' Matt Egan contributed to this article.