The Fall of FTX’s Sam Bankman-Fried Puts Crypto Industry on Edge

FTX declined to comment on Binance’s pullout from the deal. In a Slack 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.”

Mr. Bankman-Fried fell at the hands of Changpeng Zhao, the chief executive of Binance, the only crypto exchange bigger than FTX. After reports circulated that one of Mr. Bankman-Fried’s other businesses was on shaky financial footing, a Twitter post by Mr. Zhao, who is known online as CZ, essentially started a bank run that crippled FTX. On Tuesday, Binance announced that it had agreed in principle to buy its biggest competitor.

“CZ executed a pincer movement,” said Lee Reiners, a crypto expert who teaches at Duke University Law School. “He surprised all of us.”

Unlike some other crypto companies that have imploded this year, FTX was almost mainstream. 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.

As the company collapsed, FTX’s venture investors were in the dark about Mr. Bankman-Fried’s plans, and employees had little guidance. Other companies distanced themselves. “There can’t be a ‘run on the bank’ at Coinbase,” Alesia Haas, that U.S. crypto exchange’s chief financial officer, wrote in a blog post. “We hold customer assets 1:1.”

In a note to Binance employees that was posted on Twitter, Mr. Zhao said FTX’s demise “is not good for anyone in the industry.”

“Regulators will scrutinize exchanges even more,” he wrote. “Licenses around the globe will be harder to get.”

This is a developing story. Check back for updates.