binance: Crypto firm Binance endures wild weeks following FTX collapse

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Paris, December 22, 2022 – Even by the extreme standards of cryptocurrency trading, the past few weeks have been a frantic race for Binance, the world’s largest crypto asset exchange.

After rival FTX collapsed in a flurry of fraud and criminality allegations last month, confidence across the industry plummeted.

Clients withdrew over $3 billion from Binance in a single day last week in a three-day frenzy that saw over $6 billion withdrawn.

On Friday, accounting firm Mazars, hired by Binance to provide a “proof of reserves” report, abruptly halted work with all crypto firms due to a “public misunderstanding” about what they were providing.

A “proof of reserves” report is not a full audit and does not provide information about liabilities.

Media reports have suggested US prosecutors are still weighing money laundering and sanctions violation charges against the company and possibly its co-founder and CEO Changpeng Zhao. The company declined to comment on the investigation.

The stakes couldn’t be higher. “It is absolutely vital that Binance survives,” said Dan Ashmore, analyst at crypto investment firm Invezz.

“Any sort of demise would be a devastating blow to crypto and would likely drag much of the industry down with it.”

For Starkiller Capital’s Leigh Drogen, it would be an “armageddon” for crypto asset prices in the near term if Binance crashes.

– ‘Confused and scared’ investors – Zhao’s public appearances did little to calm the jitters.

In a recent interview with CNBC, he claimed the company “kinda forgot” part of a $2.1 billion payment Binance received from FTX last year.

Zhao said a “big chunk” was paid into FTX’s now worthless internal token, but it sat untouched for 18 months before Binance remembered and transferred the sum, which was then worth 580 million. of dollars.

“Forgetting over half a billion dollars is supposed to make me more confident in Binance’s ability to properly run an exchange,” Grit Capital’s Geneviève Roch-Decter wrote in an opinion piece for Coindesk, a news outlet. cryptography information.

Critics point out that Zhao is prone to making confusing and sometimes contradictory public statements.

It claims to want transparency, but Binance refuses to disclose even basic company information, such as where it is registered, let alone submit to a full audit, as a publicly traded company would have to undergo.

Zhao is closing in on regulators in some jurisdictions, but reportedly kept his core business out of sight in the Cayman Islands.

He insists on the solidity and competence of his firm, but his personal Twitter feed paints the image of a one-man-band supported by interns.

“Who runs the show there? Is it the same as FTX,” Drogen asked.

He said Zhao’s behavior was “strangely similar” to that of Sam Bankman-Fried, the boss of FTX who is currently in custody awaiting extradition to the United States for financial crimes.

“Everyone is very confused and scared about it,” Drogen said.

When asked to clarify details of Binance’s structure, a company spokesperson said in an email “Binance.com’s global business operates through a number of incorporated entities in various jurisdictions”.

On the issue of transparency, he said that the blockchain technology on which crypto is based is “inherently transparent”.

“Having said that, we are embracing additional transparency and looking at how best to deliver that in the coming months,” he said.

– ‘Too big to fail’? – Analysts agree that comparisons with FTX don’t go very far.

“While there are clear parallels with FTX, there are important differences, the most notable of which is that Binance does not have a giant in-house hedge fund,” said Charlie Erith of ByteTree Asset Management.

Much of the alleged wrongdoing at FTX involved Bankman-Fried using deposits from FTX clients to fund risky bets undertaken by its hedge fund Alameda Research.

“I don’t think there’s anyone out there, even those assuming the absolute worst, who thinks Binance is even halfway insolvent,” Drogen said.

He pointed out that Binance is around 10 times bigger than FTX before the collapse, in terms of assets that should be on its platform, giving it a much bigger cushion in case of a sudden surge in withdrawals.

Binance’s spokesperson said the company has been processing withdrawal requests for the past week “without interruption”, adding that “flows have now normalized”.

Drogen pointed out that hedge funds and venture capitalists with exposure to crypto assets need the Binance platform now to protect their positions.

But the company’s long-term prospects are less clear, especially if US authorities pursue criminal charges.

“Our feeling is that nothing in crypto is too big to fail for the US government,” Drogen said, “and they’re probably going to crush something that’s illicit on some level.”

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