Binance, alone at the top after FTX, stirs 'too big to fail' crypto

After Sam Bankman-utter Fried’s demise, the concern is increasing about Changpeng Zhao’s Binance’s hegemonic position in the cryptocurrency market. The concerns resurfaced on Friday when the auditing firm Mazars Group paused work on papers intended to show that Binance and other cryptocurrency companies have the requisite cash composers to deal with any unforeseen rise in consumer withdrawals.

Trust in the entire sector has collapsed following the rival FTX’s demise last month under a barrage of accusations of fraud and criminal activity. Over $3 billion was taken out of Binance by users in a single day last week as part of a three-day frenzy that saw more than $6 billion taken out.

However, Zhao, who goes by the initials CZ, has emphasized time and time again that his exchange, Binance, doesn’t misappropriate customer funds, unlike FTX, as well as that it can handle any volume of alienations that come it’s the way. As evidence of its ability to weather prior “crypto winters,” including the more than 80% decline in Bitcoin from December 2017 to the end of 2018, Binance has a lengthier track record than FTX.

Still, the past few days have been trying. The decision by Mazars raises concerns about the accounting picture.

Even for those who theoretically back CZ and his exchange, Binance’s dominance of the market following FTX’s demise doesn’t sit well in a sector that promotes decentralization. Binance has become a “too big to fail” participant in a market where, unlike traditional finance, nobody is there to stop a potential failure, issue a bailout, or calm any contagion. This is confirmed by the decline in cryptocurrency prices this week that followed news about CZ’s company.

Mark Lurie, the CEO, and co-founder of Shipyard Software, a maker of decentralized exchanges, said: he doesn’t think Binance is attempting to cause difficulties, but that organization is now a risk to all of them. There are several organized dangers whenever one player controls a minimum sizable amount of volume. According to CryptoCompare, Binance has raised its market share to 52.9%, its greatest ever, and grown its share of derivatives trading to 67.2% while Bankman-FTX Fried’s empire went into bankruptcy and the 30-year-old former billionaire traded a beautiful apartment for a Bahamas jail cell.

Sen. Bill Hagerty of Tennessee said a hypothetical collapse of CZ’s exchange would be catastrophic for the cryptocurrency industry, and it would prove catastrophic to all of the consumers that utilize the industry and when the topic of Binance’s dominance came up in a Senate committee hearing on FTX on Wednesday. Binance’s CZ has paraphrased in tweets and public remarks that no client exodus will be enough to put the business under strain. The overwhelming number of client withdrawal requests this week put that confidence to the test. The native coin of the exchange, Binance’s BNB, has also taken a beating, falling 20% since Monday.

A spokesman for Binance claimed in an email on Friday that the company could fulfill the $6 billion in net withdrawals between Monday and Wednesday without breaking pace as the representative stated that Binance does not invest user cash and that all assets are backed exactly one-to-one. Client cryptocurrency is also held in segregated accounts. The representative stated that Binance has a debt-free capital structure and keeps a $1 billion emergency fund to safeguard users in dire circumstances.

The type of unfounded “FUD” — fear, uncertainty and doubt — that has followed cryptocurrency from the start is what CZ likes to attribute a large portion of the newfound attention to. But it’s unlikely that he will see the sun again anytime soon.

The accounting firm’s exit left CZ without a third-party expert to support his claims, even if Mazars’ assessment of Binance’s reserves fell short of a complete audit and failed to fully restore confidence. And in the post-FTX context, CZ likes to attribute a large portion of the increased attention to the unfounded “FUD” — fear, uncertainty, and doubt — that has haunted crypto since its inception. But it’s unlikely that he will see the sun again anytime soon.

Government Investigations Binance might turn out to be immune to the kind of bank run that brought down FTX and other companies this year, but CZ continues to be the target of government investigations and legal risks that could become existential threats to the company.

According to a story from Bloomberg from last year, the Internal Revenue Service and Justice Department are both looking into Binance. In 2020, Chainalysis Inc., a blockchain forensics company with clientele that includes U.S. federal agencies, concluded that more cash associated with criminal activities went through Binance than any other cryptocurrency exchange among the transactions it studied.

According to Reuters reports, which cited people familiar with the situation, disagreements among the prosecutors are preventing the DOJ investigation from being completed. As per the reports, some of the case’s prosecuting attorneys want to analyze more evidence while others think the government has enough to press criminal charges against CZ and other executives of Binance. The corporate representative said on Friday, Binance has created clear business policies to guarantee we operate globally in a regulatory-compliant manner that CZ worked from 2002 to 2005 at Bloomberg LP, Bloomberg News that is owned by the organization.

The cryptocurrency community is also closely monitoring the possibility that FTX’s bankruptcy case leads to attempts to recoup the $2.1 billion that FTX paid to buy back Binance’s investment in Bankman-business and Fried’s much of which was paid in an FTX token whose value has since plummeted. Kevin O’Leary, a “Shark Tank” star who has millions of dollars in cryptocurrency locked up in FTX as the result of a sponsored sponsorship, said to a Senate committee: maybe he wants a Madoff clawback on those revenues.

When asked if he was ready to repay the $2.1 billion during a CNBC interview on Thursday, CZ replied, “I think we’ll leave it to the attorneys,” which sparked a fresh round of criticism from the crypto trolls for his evasive response. We won’t know for sure if these were just more FUD until later.

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