Events surrounding the FTX and Binance drama spilled over yesterday. With the demise of FTX, the second largest exchange in the world and one of the supposed flagships of the industry, the crypto market has seen one of the darkest days in its recent history.

While Binance signed a non-binding letter of intent (LOI) yesterday to fully acquire FTX, there are still major doubts from all sides as to whether the deal will actually go down. This uncertainty surrounding the insolvency of FTX and Alameda as well as possible contagion effects are currently weighing heavily on the market.

Underlying the uncertainty is that the terms of the deal have not been disclosed. In addition, Binance CEO “CZ” said that he can pull out of the deal at any time and must conduct due diligence before the deal is set in stone.

What About FTX And Its Client Funds?

In a now leaked letter from FTX CEO Sam Bankman-Fried (“SBF”) to his investors, he expresses this very uncertainty. In the letter, SBF apologizes for the lack of communication about the deal with Binance:

I’m sorry I’ve been hard to contact the last few days – I wish I could have been more communicative during this process, but unfortunately I wasn’t able to be; things were coming down dynamically.

In the next paragraph, SBF emphasizes that he has reached a “non-binding agreement to purchase FTX” with CZ.

“What does this mean, exactly? That’s a good question; and unfortunately, I don’t have a perfect answer for you, because the details are still being hashed out. We’ll keep you updated as we learn more over the next days and weeks,” SBF continues.

Twice, the FTX CEO stresses that the “top priority” is to protect customers and the industry. “We’re optimistic that we’ll accomplish all of those, which means that we’ll soon be focusing on our second priority: shareholders.”

SBF’s final sentence could set the tone and is signaling more uncertainty for client funds. He apologizes once again and says: “[…] I’m sorry I didn’t do better, and am going to do what I can to protect customer assets, and your investment.”

The email comes after FTX experienced a massive run on the exchange that resulted in withdrawals being halted on Tuesday. According to SBF’s latest statements, the exchange is currently working to clear the backlog of withdrawals.

Although a Binance bailout may be in the works, FTX investors may still find themselves in a precarious position. The deal appears to be on shaky ground. And SBF’s statement that all customer funds are safe also seems questionable. Remarkably, SBF has deleted its corresponding tweet from yesterday.

Now deleted tweet from SBF assuring clients that FTX could fully cover client assets pic.twitter.com/4YW8hbqE7Q

— Will Clemente (@WClementeIII) November 8, 2022

The size of the hole to be plugged will be one of the key factors in deciding whether the deal will go through. Whether there will be a an agreement can only be speculated. Analyst Lex Moskovski anticipates that Binance will indeed buy FTX.

People who already have billions chase influence and admiration.

Not another billion or two.

Profit maximalism has diminishing appeal as capital grows.

So, unless something shady surfaces, I expect the Binance-FTX deal to come through as it brings exactly this, I&A.

— Lex Moskovski (@mskvsk) November 9, 2022

On the other hand, Adam Cochran commented that the hole is probably much bigger than the initial estimates. According to his sources, there could be a lot of other small funds “that are completely dead today and have their own bad books.”

While he stresses that he doesn’t have “nearly as many contacts in the Eastern markets or Binance circles,” however, there are “a lot of rumors about it that don’t look good,” Cochran said:

Ok, heard from multiple more secondary sources that I have decent trust in – but nothing confirmed. I’d change my view here. Feels like 70%-80% that this doesn’t happen. You are praying on a hail mary now.

I think odds are Binance walks. I mean to be balanced I also heard from someone who normally I’d trust who said the deal *is* happening, but calls to the other side are more numerous.

The Bitcoin is currently in a wait-and-see moment, awaiting further news from the deal while the trading volume is drying up.