FTX’s business was built on a type of risky trade — in which investors borrow money to make big bets on the future value of cryptocurrencies — that remains illegal in the United States. But Mr. Bankman-Fried started a smaller U.S. affiliate that offered more conservative trading options, while lobbying American regulators to approve the riskier model. As the company grew, he became a prolific political donor, contributing more than $5 million to Mr. Biden’s 2020 election effort.
Late Wednesday, Binance issued an unusually harsh statement explaining why it backed out of the deal, citing “mishandled customer funds” and investigations by regulators. The investigations could not be confirmed, and Binance did not offer details.
“Every time a major player in an industry fails, retail consumers will suffer,” Binance said in its statement. “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.”
FTX declined to comment on Binance’s pullout from the deal. In an internal message to employees viewed by The New York Times, Mr. Bankman-Fried said: “I’m working, as quickly as I can, on next steps here. I wish I could give you all more clarity than I can. I completely understand if you want to step away, and don’t blame you at all for it.”
He added that Binance “had not previously informed us or expressed those reservations.”
Unlike some other crypto companies that have imploded this year, FTX was almost a mainstream brand. Mr. Bankman-Fried ran a commercial during the Super Bowl and bought the naming rights to the Miami Heat’s basketball arena. He was profiled in virtually every major news outlet, including The Times, and has nearly a million followers on Twitter.
“It’s like if the person you thought was Hermione actually turned out to be Voldemort,” the crypto journalist Laura Shin tweeted on Wednesday.
The crisis started after reports circulated over the weekend that one of Mr. Bankman-Fried’s businesses was on shaky financial footing. Mr. Zhao, who is known online as CZ, amplified the reports on Twitter, sparking a bank run that crippled FTX.