Even by the extreme standards of cryptocurrency trading, the past few weeks have been a wild ride for Binance, the world’s largest crypto asset exchange.
After the collapse of his rival FTX Trust in the entire industry has collapsed in a flurry of fraud and crime allegations over the past month.
Customers withdrew more than US$3 billion (around Rs. 24,000 crore). binance on a single day in the past week as part of a three-day frenzy that saw more than $6 billion (approximately Rs. 48,000) withdrawn.
On Friday, auditing firm Mazars, hired by Binance to produce a “proof of reserves” report, abruptly halted work with all of them crypto Company due to “public misunderstanding” of what they offer.
A “Proof of Reserves” report is not a complete audit and does not provide information about liabilities.
According to media reports, 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 has declined to comment on the request.
The stakes couldn’t be higher.
“It is absolutely vital that Binance survives,” said Dan Ashmore, an analyst at crypto investment firm Invezz.
“Any kind of sinking would be a devastating blow to crypto and would likely take a large chunk of the industry with it.”
For Starkiller Capital’s Leigh Drugs, if Binance were to collapse, it would be “Armageddon” for short-term crypto asset prices.
Investors ‘confused and scared’
Zhao’s public appearances have done little to calm nervousness.
In a recent interview with CNBC, he claimed the firm “kind of forgot” part of a $2.1 billion (around Rs. 17,000) payment Binance received from FTX last year.
Zhao said a “huge chunk” was paid with FTX’s now worthless internal token, but went untouched for 18 months before Binance remembered and transferred the sum, which was then valued at $580 million (about $4,700). billion rupees).
“Forgetting over half a billion dollars should give me more confidence in Binance’s ability to properly operate an exchange,” wrote Grit Capital’s Genevieve Roch-Decter in an opinion piece for Coindesk, a crypto news outlet.
Critics point out that Zhao tends to make confusing and sometimes contradictory public statements.
He claims to want transparency, but Binance refuses to disclose even basic company information such as:
Zhao hugs regulators in some jurisdictions but reportedly keeps his core business away from prying eyes in the Cayman Islands.
He emphasizes the solidity and competence of his company, but his personal Twitter feed paints a picture of a one-man band supported by interns.
“Who runs the show there? Is it the same as FTX?” Drugs asked.
He said Zhao’s behavior was “eerily similar” to Sam Bankman-Fried, the head of FTX, who is now in custody awaiting extradition to the United States on financial crime charges.
“Everyone is very confused and scared about it,” Drugs said.
When asked to clarify details of Binance’s structure, a company spokesman said in an email, “Binance.com’s global business is operated through a number of companies incorporated in a number of jurisdictions.”
On the subject of transparency, he said the blockchain technology that crypto relies on is “inherently transparent.”
“Nevertheless, we welcome additional transparency and are looking at how best to ensure this in the coming months,” he said.
‘Too big to fail’?
Analysts agree that comparisons to FTX only go so far.
“While there are obvious parallels to FTX, there are important differences, the most notable of which is that Binance doesn’t have a huge internal hedge fund,” said ByteTree Asset Management’s Charlie Erith.
Much of the alleged wrongdoing at FTX is related to this Bankmann-Fried Using FTX customer deposits to fund risky bets for his hedge fund Alameda Research.
“I don’t think there’s anyone out there, not even the people who assume the absolute worst, who think Binance is even half insolvent,” Drugs said.
He pointed out that Binance is about 10 times larger than FTX before the collapse in terms of assets that should be on its platform, giving it a far larger cushion in the event of a sudden spike in withdrawals.
Binance’s spokesperson said that the firm processed last week’s withdrawal requests “without interruption,” adding that “flows have now normalized.”
Drugs stressed that hedge funds and venture capitalists exposed to crypto assets now need the Binance platform to protect their positions.
But the company’s long-term prospects are less clear — especially if US authorities press ahead with criminal charges.
“Our feeling is that nothing in crypto is too big for the US government to fail,” Drugs said, “and they will likely crush something that is illegal at some level.”
