Binance, the world’s biggest cryptocurrency exchange, has walked away from a bailout deal of its smaller rival FTX.
Binance said it would not pursue the deal, citing reports of “mishandled customer funds and alleged US agency investigations”.
FTX had been struggling with a surge in withdrawals that caused a “liquidity crunch”.
Concerns about FTX’s financial health reportedly triggered $6bn (£5.2bn) of withdrawals in just three days.
The Reuters news agency reported on Wednesday that the US Securities and Exchange Commission (SEC) was investigating FTX’s handling of customer funds and its crypto-lending activities.
The markets regulator was examining whether the platform had followed securities laws about keeping customer assets separate and whether it had traded against customers.
Binance said in a statement posted on Twitter that the issues facing FTX were “beyond our control or ability to help”.
“Every time a major player in an industry fails, retail consumers will suffer. We have seen over the last several years that the crypto ecosystem is becoming more resilient and we believe in time that outliers that misuse user funds will be weeded out by the free market.”
The exchange added that “as regulatory frameworks are developed and as the industry continues to evolve toward greater decentralisation, the ecosystem will grow stronger”.
FTX’s founder Sam Bankman-Fried and Binance’s chief executive Changpeng “CZ” Zhao are two of the most powerful people in the cryptocurrency market and high-profile rivals.
A notice on FTX’s website said: “FTX is currently unable to process withdrawals. We strongly advise against depositing.”
Bitcoin dropped below $16,000 after Binance pulled out of the deal before regaining some ground, while shares in cryptocurrency exchange Coinbase fell by more than 9.5%.
