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14th December 2022 > > Binance.

tl;dr

Binance may or may not be in trouble, but it’s better to be cautious.


Market Snap








Market Wrap

The leveraged shorts got taken out giving a fillip to the price of BTC resulting in a monthly high overnight. Meanwhile ARG (the Argentinian team token) has doubled in the last few days, though all the team tokens have seriously underperformed my hopes during this World Cup.


Occasional Series — Bankman-Fried, fraudster and ex-CEO of FTX

This criminal who conned millions of people out of billions of dollars’ worth of savings – closely following the playbook written and refined during thousands of years of legacy financial frauds – applied for bail following his arrest because he needs to maintain his vegan diet.


Curious Cryptos’ Commentary — Binance

It seems that the arrest of Bankman-Fried has triggered fear amongst some investors as to the solvency or otherwise of Binance, by far the largest centralised cryptocurrency exchange in the world.


Just yesterday, $3bn of assets were withdrawn, presumably mostly into self-custody wallets such as Ledger Nano X. Such news stories are of course self-reinforcing. I have long held the opinion that no more than 5-10% of your crypto assets should be held across centralised exchanges, as a key mitigator against the risk of a collapse of any one exchange. Of those funds of mine on centralised exchanges, the vast bulk were held at Binance and Coinbase. But the FUD gets to me too, and a large proportion of my Binance holdings are now in cold storage.


Make no mistake, the collapse of Binance would be the single biggest disaster to have ever happened to the crypto market.


Some commentators on Twitter explain this better than I (all spelling and grammatical errors are faithfully reproduced from the originals):


“I don’t understand why people are cheering for Binance to collapse. You realise if Binance goes down everything else will crumble? Yes #Bitcoin will survive but the entire crypto ecosystem including stablecoins will die.”


“Binance going insolvent will definitely set the industry back by some years I agree on this. But will the crypto industry disappear.. no I disagree. Crypto has been here way before binance came to existence & it will be here thereafter”


“The media are trying to cause a bank run on @binance. In the last several weeks they have attempted to push several narratives to this regards, with the latest being that @binancedid not pass an audit. The fact is, time is the #1 audit and @binance has proven the test of time.”


“If Binance goes down it won't do any good for this space. Back to the stone age. Binance is my #1 exchange. I believe that Binance is fine and this is a coordinated FUD campaign operated by entity that wants crypto to fail.”


“Binance going insolvent means crypto disappears. Why are people even putting this out there?”


“Crypto will not disappear. That ship sailed already. Crypto is here to stay. However, it would be a disaster for the markets for a long time. Governments will use it as another example for more crypto regulation. And thousands of people, and families will lose their live savings”


And so on.


Binance has frequently come in for criticism in these pages for its previous lacklustre approach to adhering to regulatory norms.


In the last year or so there has been a sea-change in the attitude of senior management to this issue. However, we currently have a private company with several differing operational entities some of which follow local regulatory standards, but with no central head office that speaks for the whole organisation. This is not an ideal situation for such a major player.


A recent audit suggested that customer deposits at Binance are covered 1.01 times by assets held in reserve, but that doesn’t address the potential problem of other liabilities held either on or off-balance sheet. Binance has this to say:


“User assets at Binance are all backed 1:1 and Binance’s capital structure is debt-free.”


Let us hope this is true.


Reuters believes otherwise claiming that US prosecutors are close to “… filing criminal charges against individual executives including founder Changpeng Zhao.”


It is always the case that financial disasters bubble away under the surface for a long time, before erupting suddenly and with little warning.


It is always the case that financial disasters derive from either fraud, or leverage probably allied with correlation, or usually a combination of all three factors.


It is not possible to state with any certainty whether Binance is in a good place or not, though this does not appear to be the same situation and build-up that we saw with FTX (see the CCC warning to move your assets off FTX on 8th November 2022 just hours before withdrawals were halted).


But caution is sometimes the better option.

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