Crypto corporation Binance faces intense scrutiny

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Following dramatic collapse of FTX and arrest of its kingpin Sam Bankman-Fried, investors are worried that cracks are starting to appear at Binance, world’s leading crypto exchange. Binance faces question about its reserves and it is already under investigation by the Department of Justice (DOJ).

Fearing similar fate of Binance as FTX collapsed and it is uncertain whether investors would get their investment returned, customers drained billions of dollars from Bianance’s crypto platform recently – just one reason the spotlights is glaring on the company in the wake of the FTX bankruptcy.

According to media reports, spooked investors are on the alert for signs of trouble after the collapse of FTX, the once US$32 billion crypto empire founded by Sa  Bankman-Fried, who now is known as a fraud while FTX is seen as the biggest fraud in American history.

After FTX’s bankruptcy showed its coffers were bare, crypto firms came under pressure to show their customers’ holdings were safe and they could pay up if there was a rush of withdrawals.

On top of that, a Reuters report said FTX’s Bankman-Fried quietly transferred at least US$4 billion in user funds to sister trading firm Alameda Research after it suffered losses.

Meanwhile, Binance is trying to show its credibility and strength by hiring expensive accounting firms such as Mazars, which according to crypto experts is an attempt of somehow saving it also from being collapsed.

They said, Binance users should not be satisfied with the Mazars report, as it did not dig into how good the financial controls were. Even though it suggested Binance’s situation was solid, it also showed bitcoin liabilities were US$245 million bigger than assets, according to a report published in the Wall Street Journal.

It is learnt, nearly half of the Binance’s US$75 billion reserves are in its own stablecoin BUSD and its native token Binance coin (BNB), according to a Bloomberg report of November 2022.

The Financial Times said, on December 16, 2022 Mazars suspended its proof of reserves work with Binance and other crypto clients due to concerns regarding the way these reports are understood by the public.

Binance has seen heavy withdrawals in recent days as questions about its reserves and a DOJ investigation built. Meanwhile, the arrest of FTX founder Bankman-Fried eroded trust in crypto further.

According to Nansen data, on December 13, 2022, Binance logged its highest daily withdrawals since June this year, with net outflows of US$3 billion over just 24 hours. The exchange was forced to temporarily freeze withdrawals of USD Coin while it boosted its holdings of the stablecoin.

Nansen data said, just over a month ago, Binance held US$69.50 billion in digital assets in publicly disclosed wallets. That total’s now US$54.70 billion due to large withdrawals and price fluctuation, while it is anticipated that billions of dollars would be withdrawn from Binance within the coming weeks.

Adding fuel to the fire were reports the US Justice Department has been investigating Binance over the company’s compliance with financial crime rules.

Prosecutors are considering whether to file criminal charges against its founder Changpeng Zhao and other executives, according to Reuters. These would cover money laundering conspiracy, unlicensed money transmission, and criminal sanctions violations.

Reuters calculated that Binance processed over $10 billion in illegal payments in 2022 and said it tried to evade regulators, which the crypto giant disputed.

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