ONE of the world's largest cryptocurrency exchanges is on the verge of collapse after a rival pulled the plug on a bailout deal, in part due to an investigation into alleged mishandling of customer funds.

Leaked reports concerning the financial health of FTX saw customers and businesses move to withdraw their money, with reports of $6bn being withdrawn in the space of three days.

Founded by Sam Bankman-Fried, the exchange had over $1bn of revenue in 2021 but the withdrawals triggered a "liquidity crisis".

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FTX is the fourth-largest cryptocurrency exchange in the world, and the largest, Binance, had explored the possibility of taking it over.

However, on Wednesday the company announced that after conducting due diligence it would not be moving forward.

Binance stated that reports from Reuters and Bloomberg that the US Securities and Exchange Commission is investigating FTX's handling of customer funds and its crypto-lending activities was part of its decision making process.

A statement said: "As a result of corporate due diligence, as well as the latest news reports regarding mishandled customer funds and alleged US agency investigations, we have decided that we will not pursue the potential acquisition of FTX․com.

"In the beginning, our hope was to be able to support FTX’s customers to provide liquidity, but the issues are beyond our control or ability to help."

A notice on its website said: "FTX is currently unable to process withdrawals. We strongly advise against depositing."

The website also states that it will not be taking on new clients until further notice.

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Temple Melville, CEO of Scotland's first cryptocurrency Scotcoin, was not shocked that the deal failed.

“There can be little surprise that Binance has walked away from the deal for FTX," he said. 

"The hole in FTX’s balance sheet will only get bigger as its token disappears through the floor and, unfortunately, the same is likely to apply to all of its sister companies, as they bought lots of FTT token to support it.

"Fears over contagion are real, but the positive news is that Coinbase has said it holds neither FTT and any exposure to FTX.”