So far, it always started with rumblings, rumors, without anyone expecting it. Similar to the cases of Celsius, Voyager or Terra Luna, FTX also had all kinds of speculations that there was a problem with the company, where the CEO, Sam Bankman Freed, was quick to reassure everyone and inform them that everything is fine. As we all know, the same week that Freed He tweeted “The stock market is fine, the assets are fine” His company has already entered bankruptcy proceedings. FTX was the third largest stock exchange, it worked with huge entities like Visa and even had a strong relationship with the US regulatory authorities – almost no one expected to see it collapse, Certainly not at such a speed, but as we have seen so far in the crypto world – you can’t trust anyone. In the last week and a half, concerns are emerging again, which may indicate a terrible situation for the crypto world, an event much more serious than the collapse of FTX.
Yesterday, funds were withdrawn from the world’s largest exchange – Binance, in the amount of approximately 6.5 billion dollars. Together with the withdrawals, it is reported that sums amounting to 6.6 billion dollars were brought into the stock exchange. It seems that net, about 100 million dollars entered the stock market despite the many withdrawals, but the significant thing here – who put the money in? How is it logical that the amount of withdrawals is so large and together with it the amount of deposits continues to grow?
It is very likely that a considerable amount of the reported deposits do not come from investors at all, but from Binance itself. Binance is indeed the largest exchange in the world, but it is not a private company and the truth is that it is not regulated either – No one really knows what’s going on beneath the surface, what the company’s debts really are and how many assets it really owns out of the total amounts that are associated with its customers. Binance does have large amounts that can be verified – addresses of wallets where you can see the amount of coins they have on a certain blockchain, for example the Bitcoin blockchain, but as said above, we don’t have a real and clear picture or a test conducted by one of the four The largest accounting firms in the world.
Since the collapse of FTX, Binance’s power and size has only grown – according to a report by CryptoCompare, the company was responsible for about 53% of all cryptocurrency trading in November. The company also recorded a record in the crypto derivatives market, when its market share in November was 67%. The problem is that the fears of what happened to the competitor have returned to seep into the investors, who understand that now no one is really immune in the crypto world and even the strongest and largest company may collapse.
According to the estimates of the data company Coinglass, customers withdrew more than 45,000 bitcoin coins worth about 800 million dollars in the last day, which is more than other coins withdrawn from the company. So far the company does not present any problem processing the withdrawals, on the contrary – CEO Changfeng Zhao invited customers to check the liquidity and strength of the company and withdraw as much as they want. Binance claims that it is able to handle a transaction volume of tens of billions of dollars for approx. Its 120 million users.
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Other unusual events
This week it was reported that the company stopped processing withdrawals of the stable currency USDC, according to it due to volatile trading and technical problems arising from currency exchange and the fact that the requested withdrawals were from banks in the US that had not yet opened. The event came after it was reported last week that the Department of Investigation at the US Department of Justice is investigating alleged criminal offenses of the crypto exchange and its managers for non-compliance with US money laundering laws and sanctions. The investigation began in 2018 and at least half of the federal prosecutors involved in the case believe the evidence already gathered warrants criminal charges against individual executives, including founder Changfeng Zhao. Others argued that it takes time to review more evidence.
While Bitcoin and Ethereum remained roughly at the same price they traded at about a week ago, Binance’s currency – BNB, with which you can get discounts on trading fees on the stock exchange, fell by 10%, apparently following the rumors surrounding the company’s problems. No liquidity problem of the company has been reported yet, but again – it usually starts with rumors about unlikely problems, which do not necessarily affect the company or may not seem too relevant to us, and in the end, the thing we least expect happens.
Binance has a fund in the amount of more than a billion dollars which is supposed to protect its investors in the event of a collapse or hacking of the company’s assets, but if the company somehow collapses, those billion dollars will look like a drop in the ocean. The company also underwent due diligence by the accounting firm Mazaras, but the firm said that it does not take responsibility for the situation of Binance and we still do not know the amount of assets the company has and the size of its liabilities – how much money it owes its customers.
In days like this it is always wise to be extra careful when it comes to where we keep our digital assets. The safest way is probably by keeping them in a cold wallet – a kind of device similar to a diskonkey that stores the private keys (our code/password) for the cryptocurrencies we have. When we hold the coins with a certain exchange, we trust that they exist.
The big problem is that it could be that the same stock exchange operates with a partial reserve and only holds a part of the clients’ assets. If the exchange only holds a fraction of the amount of assets that customers believe they have, in the event that everyone wants to withdraw the money, they will find that there is not enough for everyone, the company will go bankrupt and the investors will lose their money – exactly what happened with FTX. Precisely because of the case of FTX and all the concerns surrounding other exchanges such as Binance, many crypto investors are transferring their money to self-custody, in the form of a hot or cold wallet, for a guide on crypto wallets and self-custody you can continue reading here. It should be mentioned – the crypto is still new, the regulation is still in its infancy and it is very important to verify everything as many times as possible and obtain information from as many sources as possible, otherwise you can lose your money and in such a situation – no one will probably return it to you.