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After the dramatic collapse of US crypto exchange FTX, investor confidence in the cryptocurrency ecosystem has dropped significantly. As such, ongoing media reports and social media rumors about a higher-than-usual outflow of funds from the worlds largest crypto exchange, Binance, have raised alarm bells among crypto investors and the wider investment community.
Binance’s controversial reserve proof, meant to calm investors down, appears to fuel more speculation about the company’s financials. The report’s release sparked speculation online that: Binance is not 100% collateralizedhas raised serious concerns about exchange solvency.
Bitcoin Has Experienced Some Meteor Rise 73,000% from 2012 to December 2022despite being completely separate and independent from Bitcoin itself, once again faces the negative effects of bad actors within the cryptocurrency ecosystem.
The cryptocurrency exchange, led by Changpeng Zhao, commonly known as CZ, hired Mazars, the audit firm used by former President Donald Trump, to produce an audit report. The focus was on the exchange’s assets being stored for its users. On several occasions, including December 13th, Binance will enough money Covers all customer funds.
Still, the Mazars report was not well received by the public, with many on Twitter deeming it fake and auditors saying Binance Only 97% secured.
John Reed Stark, former Internet Chief Operating Officer for the U.S. Securities and Exchange Commission (SEC) said:
Binances proof of reserves report does not refer to the effectiveness of its internal financial controls, does not express any opinion or endorsement conclusions, and does not guarantee any figures. I worked for SEC Enforcement over his 18 years. This is how I define red flags.”
Stark also accused Binance of hiring Mazar to produce a reserves report instead of using the services of one of the four major audit firms.
according to In the case of blockchain intelligence platform Nansen, concerns over Binance collateralization triggered massive withdrawals on exchanges, with investors withdrawing over $2 billion in just two days. The figure marks the highest net outflow on Binance since the FTX implosion.
Binance is next Withdrawal suspension of the USDC stablecoin. However, the exchange said it had suspended withdrawals while performing a token swap, which exchanges one cryptocurrency for another without using fiat currency.
Still, large withdrawals could suggest investors are looking to move their assets to another platform or self-custody.Additionally, Reuters recently revealed that the exchange and its founder, her CZ, are both face potential lawsuits Arrested by the U.S. Department of Justice (DoJ) on charges of potential money laundering and violating criminal sanctions.
Other cryptocurrency exchanges have also witnessed substantial outflows since the demise of FTX, one of the largest cryptocurrency exchanges at the time. As FTX’s situation continues to deteriorate, exchange founder and former CEO Sam Bankman-Fried said: Arrested in Bahamas He was indicted by US authorities for defrauding investors.
Meanwhile, the outlook for risk assets improved following the release of the latest consumer price index (CPI), confirming that US inflation is softening, and a more dovish monetary outlook by the Federal Reserve. Expectations are rising for policy approaches.
However, that may not be particularly true for Bitcoin and other digital assets, as crypto-specific news continues to undermine investor confidence. The unstable confidence and potential issues at Binance could seriously damage the cryptocurrency ecosystem.
bitcoin falls over 20 With the FTX collapse in early November, about $250 million was wiped out of the cryptocurrency market cap in response to the FTX fallout. Many fear that the collapse following the possible collapse of Binance could be even worse, with severe and long-term consequences for the entire Bitcoin-centric ecosystem.
First, the overall risk sentiment surrounding Bitcoin and cryptocurrencies is much worse than it was before FTX collapsed. Second, while FTX was primarily focused on the US, Binance is a bona fide global cryptocurrency exchange. A major problem on Binance could create a snowball effect, igniting new rounds of extreme withdrawals and ultimately leading to further bankruptcies.
This week, investment giant VanEck predicted that Bitcoin’s price could continue to come under pressure in early 2023 as several major mining companies are on the brink of collapse.
After stating that Bitcoin could plunge to $10,000 in the first quarter of 2023, VanEck said it could eventually recover to $30,000 later in the year.of Q123 Sale According to Matthew Sigel, head of digital asset research at VanEck, it will be the deepest winter for cryptocurrencies.
However, a recovery wouldn’t happen without the negative news specific to cryptocurrencies such as FTX and Binance.
Earlier this year, the collapse of crypto lender Celsius Network wiped out more than $4 billion in user funds. Similarly, over $1 billion in customer funds have been lost after the FTX crash. While these collapses have nothing to do with Bitcoin directly, they highlight an important problem related to centralization, the very problem that the Bitcoin network originally sought to solve.
So one of the key takeaways from the FTX drama is the growing need for self-custody of digital assets. As evidenced by several examples this year, centralized exchanges provide a convenient way for users to store their digital assets. Still, there is no guarantee that users will be able to recover those funds should any possibility arise, from hacking to malicious individuals with internal access.
Earlier this week, Ray Youssef, CEO of crypto exchange Paxful, encouraged users to switch to self-custody and move crypto funds to external hardware wallets.he wrote in a tweet:
Every week we send out an email strongly admonishing employees never to save on any exchange, including @paxful. This is the way! Always keep your savings to yourself!
Similarly, Rep. Warren Davidson, the U.S. representative from Ohio, discussed the importance of self-management during the conference. congressional hearings About the collapse of FTX.
Binance claims to be able to attract deposits while withdrawals remain steady, but the cryptocurrency community has become increasingly nervous about the financial situation of the world’s largest digital asset exchange.
A Binance demise, while seemingly unlikely, is poised to have a much stronger negative impact on the entire cryptocurrency community. , could trigger another big sell-off for Bitcoin. While this is an obvious catastrophe for many, long-term Bitcoin investors will see this as an attractive buying opportunity.
Shane has been an active advocate for the movement towards decentralized finance since 2015. He has written hundreds of articles related to developments surrounding digital securities, including the integration of traditional financial securities with distributed ledger technology (DLT). He remains fascinated by the growing impact of technology on the economy and everyday life.
