- Is Binance In Trouble? – The FTX crash calls for reflection on the crypto industry;
- Binance and CZ ordain themselves saviors of the industry;
- Binance’s woes increase amid record outflows,
- CZ prepares staff for a rough ride.
The FTX Domino-Effect
The recent FTX collapse will most definitely make it to the crypto record books for one of the most devastating events in space. There is enough blame to go around, from the media, which helped sell Sam Bankman-Fried as a visionary, to investors, who threw billions of dollars at him.
That said, the important question to ask is: how did he get away with all the fraudulent practices that went on at FTX for so long? Looking back, all the red flags have become clear and visible: FTX was run as an offshore exchange without a finance director or board; Bankman-Fried ran the business like a personal fund, dipping his hands into the coffers (investor funds) as he pleased, FTX’s weird entanglement with Alameda (his personal hedge fund), which was run by his one-time girlfriend.
As we all know, these anomalies eventually led to the disintegration of a multi-billion dollar enterprise, leaving investors and all involved with a bitter taste in their mouths. What’s worse is that it cast more aspersions on an industry that was in the middle of rebuilding investor confidence.
However, what’s important is that key industry players have learned lessons and will do better moving forward. Speaking of, though a harrowing experience, one winner appears to have emerged from the FTX collapse: Binance.
Binance and CZ Become Saviors of the Crypto Industry
Looking away from the role it played in the collapse, the fated implosion of FTX seems to have paved the way for Binance to establish itself as a credible and secure crypto exchange. With its biggest rival now underwater, Binance’s voice in the industry has become even more important and influential.
Since the collapse, Binance CEO Changpeng Zhao (CZ) has assumed the position of savior of the industry—the “big brother,” as I like to call him. In a tweet dated November 20, CZ noted:
“Bitcoin is not dead. We are still here.”
In a recent Twitter Spaces discussion, Zhao said: “We actually think this is a very good cleansing period,” adding that “the weak projects are gone, and the industry is much healthier.” All these are in line with CZ’s plan to navigate the recent downturn and rebuild trust in the industry.
In the spirit of being the big brother, Binance previously announced that it had set up a recovery fund to help struggling crypto companies. The project also called on crypto exchanges to be more transparent in their dealings and publish their “proof of reserves,” and it led the charge by posting its reserves, which showed that its investors’ funds were backed by 101%.
However, CZ has not been able to catch a breather and enjoy his newfound fame as he and his exchange come under intense fire and scrutiny, considering they’re the biggest target.
Is Binance in trouble? : Investors are Fleeing Binance
According to a CNN report citing blockchain analytics firm Nansen, Binance investors withdrew as much as $3 billion from the exchange on December 13, its largest single-day outflows, amid worries over the impact of the FTX fallout.
In an interview with CNN, Andrew Thurman, the content lead for Nansen, confirmed that at its peak, Binance saw “as high as $3 billion in net outflows” within 24 hours. Thurman also attributed the massive outflows to an ongoing investigation by the US Justice Department into Binance.
According to a report from Reuters, which cited four sources close to the case, division among US DOJ prosecutors on how to approach the case is delaying a final verdict on the long-running criminal investigation into Binance.
The investigation, which began in 2018, is focused on Binance’s conduct and compliance with US anti-money laundering laws and sanctions.
Further explaining the source of the outflows, Thurman said:
“Concurrently, a large market maker, Jump, was found to have withdrawn huge sums from Binance with no deposits over the past few weeks—(which) ultimately seems to have caused jitters among both retail and institutional users.”
He added: “In short, it’s a lot of money headed out, and that’s spooked some folks.”
Brace for Impact
CZ recently alerted Binance staff and his colleagues in a private memo to be expectant of a barrage of trials and inquests in the coming months, assuring that the company will pull through all challenges placed in front of it. The Binance boss did this as questions about the exchange’s financial status keep emerging, despite having published its proof of reserves.
In this memo sent only to staff, Zhao said the crypto industry was undergoing a “historic moment” and that Binance was equipped, health-wise, to weather the storm.
CZ also wrote in the memo:
“While we expect the next several months to be bumpy, we will get past this challenging period—and we’ll be stronger for having been through it.”
While referring to reports about increased customer withdrawals in recent days, he explained that the recent FTX collapse came with “a lot of extra scrutiny and tough questions.”
The recent rapid outflow of funds from Binance comes as investors’ sentiment and confidence take a beating from the FTX collapse, in addition to the reasons stated by Thurman. This prompted many traders to seek control of their funds by moving them from crypto exchanges to personal custody.
Being the largest crypto exchange on the planet, it’s only normal that Binance was the worst hit by this outflow. That said, reports show that Binance recorded its worst daily outflow of Bitcoin (BTC) and Ethereum (ETH) on December 13.
In his memo, Zhao asserted: “Rest assured, this organization was built to last.”
So is Is Binance in trouble?
Binance has not had the time to revel in its newfound level of dominance in the market as it remains a prime subject of scrutiny in the space. These investigations and the present level of lack of confidence will likely persist until the broader market remains stable. So, as CZ rightly informed us in his memo, it’s going to be a jumbo road for Binance in the coming months and even years.