Binance, the world’s biggest cryptocurrency exchange, has walked away from a bailout deal of its smaller rival FTX.
Binance said that after due diligence, it would not pursue the deal.
It said reports of “mishandled customer funds and alleged US agency investigations” had swayed its decision.
FTX had been struggling with a surge in withdrawals that caused a “liquidity crunch”.
FTX is a big crypto exchange and people use it to buy and sell various crypto currencies.
Concerns about FTX’s financial health reportedly triggered $6bn (£5.2bn) of withdrawals in just three days.
The Reuters news agency reported 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.
FTX was approached for comment.
A notice on its website said: “FTX is currently unable to process withdrawals. We strongly advise against depositing.”
The pressure on FTX came in part from Mr Zhao, who had tweeted on Sunday that Binance would sell its holdings of FTX’s digital token, known as FTT. The token has lost around 90% of its value this week.
Binance stepped in on Tuesday, saying it had signed a letter of intent to buy FTX’s non-US unit. But it added it had “the discretion to pull out from the deal at any time”.
Mr Zhao tweeted on Wednesday: “Sad day. Tried, but [crying emoji]”.
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%.
Meanwhile, venture capital firm Sequoia Capital said it will completely write off its more than $210m investment in FTX, as the cryptocurrency exchange is at risk of bankruptcy.
“Based on our current understanding, we are marking our investment down to $0,” the company said in a statement posted on Twitter.