FTX’s failure cast doubts on crypto exchange Binance’s ability to survive the crypto winter. Binance is the largest exchange in the world, executing more than half of the transactions on the crypto market.
A (small) part of FTX’s collapse was due to controversy. Some in the crypto world have even accused Binance’s CEO of pushing FTX to the brink. That doesn’t seem to be quite true. But what happens if Binance itself collapses? What would happen to the crypto market?
Can Binance handle the pressure?
With FTX falling, there is a growing sense of unease about Binance’s dominance in the crypto market. In addition, there are persistent rumors that Binance does not have its reserves in order. This week, the Mazars Group accounting firm shut down Binance and other crypto companies, sparking concerns.
However, Changpeng Zhao has made it known that the crypto exchange does not embezzle customer funds like FTX did. He says that his exchange can handle a huge bank run. According to many, the chance that the stock market will fall is small. According to many, Binance is simply too big to fail.
A Binance representative stated in an email Friday that the crypto entity was able to fulfill $6 billion in net withdrawals between Monday and Wednesday without delay. The representative stated that Binance has a $1 billion emergency fund to protect consumers in case of extreme events.
Binance’s dominance is concerning
On Wednesday, a Senate Judiciary Committee hearing on FTX highlighted Binance’s dominance. Senator Bill Hagerty stated that an implosion of Binance would be catastrophic for the entire crypto world.
In an effort to reassure investors, Binance’s proof-of-reserves report appears to have actually increased concerns about the company’s finances. The publication of the report has sparked widespread rumors that the giant crypto exchange is not fully covered, raising serious concerns about financial stability.
Binance’s proof of reserve report does not address the effectiveness of internal financial controls, does not represent an assurance conclusion and does not vouch for the numbers. I worked at SEC Enforcement for over 18 years. This is how I define a red flag.
– Said John Reed Stark, former chief of Internet enforcement at the SEC
In addition, Reuters has reported that Binance could be sued by the US Department of Justice (DoJ) for possible violations of money laundering and criminal penalties.
Growing concerns
Despite Binance’s assurances that it can continue to pay out deposits, the crypto community is increasingly concerned about the financial health of the world’s largest digital exchange.
Potential problems on the exchange, occurring just over a month after the FTX collapse, could trigger a massive crypto crash.
While this would be a disaster for many, Bitcoin investors with a long-term perspective would likely see it as an attractive buying opportunity.