Valuation of Binance Reserves and Liabilities – Bitcoin Magazine

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Binance: FUD or legitimate questions?

By far, one of the biggest winners from the collapse of FTX appears – at first glance – to be Binance. After having just 7.82% market share of bitcoin supply on exchanges in 2018, their share is now 27.50% despite a much broader trend of bitcoin supply leaving exchanges. The bitcoin balance on Binance now stands at 595,864 BTC, or 3.1% of the outstanding amount, worth $10.58 billion. This bitcoin is owned by their customers and reflects a growing market share trend over the past few years that has made Binance the largest bitcoin and cryptocurrency exchange in the world.

Binance now controls around 60% of the spot and derivatives volume in the entire market. It’s hard to see how any exchange in the space can be a “winner” under current market conditions, but one could make the case for Binance, with the exchange’s growing strength in a decimated industry. On top of that, Binance’s BNB token, the native currency of Binance’s Ethereum competitor Layer 1 blockchain, is still one of the best performing tokens when evaluated in terms of bitcoins this year.

However, is this recent “strength” all that it seems or is it a facade? We have learned over the past month that no company is safe in this sector at the moment (especially exchanges) and questions are growing around Binance practices, solvency, value of BNB tokens and the general state of their activities over the past few weeks. Is it FUD or legit? Let’s try to break down some of them, approaching the concerns through an objective and skeptical lens.

Binance Stream

We have seen significant outflows from Binance across various tokens and bitcoins when looking at both Nansen tracking and Glassnode. Across ETH and ERC20 tokens, Binance saw $3 billion exit the exchange in its biggest single-day outflow since June. As part of Nansen’s total wallet tracking, all Binance balances are estimated at $62.5 billion, with approximately 50% of those balances in stablecoins on BUSD and USDT.

Source: Nansen

According to Glassnode, the total bitcoin trading balance on Binance has declined by around 6-7% in the past day, after peaking on December 1. Although balances remain above 500,000 bitcoins and Binance has shown an upward trend in bitcoin balances on the platform this year, this is a significant move for releases in just 24 hours. For general comparison, the trend of bitcoin exchange balances was a much different story for FTX, whose balance had fallen sharply since June. Binance’s releases over the past two days are a bit alarming and raise questions: is this a one-time event and just business as usual or is this the start of something more?

Binance experiences its largest ever bitcoin outflow in a 24-hour period.

Readers can track Binance-provided on-chain addresses for free here.

The main cause for concern is not whether or not Binance has bitcoins/crypto. We can transparently see that the company controls tens of billions in crypto assets. What isn’t exactly clear, as with FTX, is whether the company has mixed up user funds or whether the company has outstanding debts against user assets.

Binance CEO Changpeng Zhao (CZ) said the company has no responsibilities to other companies, but as recent months have shown, words don’t mean much. Although we do not claim that CZ is lying to the public about the state of Binance’s finances, we have no way to prove otherwise.

CZ’s response on whether the company was going to audit liabilities against user assets was, “Yes, but liabilities are more difficult. We don’t owe anyone any loans. You can ask around.

Unfortunately, “ask around” isn’t a satisfying enough answer for an ecosystem that’s supposed to be built around the “don’t trust, verify” philosophy.

While there is no doubt that Binance is a giant in the crypto derivatives industry, how do we know that the company does not do the same things as past players when it comes to trading against clients using user funds and/or proprietary data. Things like the former COO of Coinbase leaving Binance US last summer after just three months while the CEO leaves many questions.

To add to our skepticism, the price of the Binance BNB exchange token is near all-time highs in terms of bitcoin, appreciating an incredible 828% against bitcoin over the past 785 calendar days.

Is BNB really worth around 14% of all bitcoin that will ever exist?

The coming weeks will be full of headlines about the state of global crypto regulation in a post-FTX world. In a 48-hour period, Reuters published information indicating that the US Department of Justice is divided on Binance’s billing, Binance withdrawals for bitcoin and aggregate stablecoin pairs have reached all-time highs and the exchange token BNB fell 10% against bitcoin.

As a precaution, we will continue to urge readers operating on any centralized exchange – of which Binance is most certainly included – to seek self-custody solutions. There were far too many instances of incompetence and/or misconduct in the exchanges.

It’s not that we don’t trust CZ or Binance, it’s the fact that we don’t trust anyone.

The whole point of bitcoin is that we now have an asset that is really no one’s responsibility. Verify ownership of an open distributed network with cryptography; do not trust authorized IOUs. With the mix of regulatory concerns regarding the global crypto derivatives industry, a dodgy exchange token with incredible relative performance over the past couple of years, and a flimsy reserve proof attestation – which has been falsely claimed to be an audit and raised the eyebrows of industry CEOs — we find it necessary to urge our readers to assess their counterparty risk.

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