Binance was once FTX’s competitor and potential savior. Now trying not to be a sequel to it

The fallout from the catastrophic crash of cryptocurrency exchange FTX continues to spill over, and fear and panic are now turning to FTX’s one-time competitor, Binance.

In the latest blow, international accounting firm Mazars has stopped providing Binance with “Proof of Reserves,” a report the exchange used to confirm it had enough reserves on hand to support customer deposits. Mazars on Friday suspended its operations for all cryptocurrency firms, according to Binance.

Customers were already freaking out earlier in the week about the safety of their funds with Binance.

Nearly $1.14 billion was withdrawn on Tuesday, as the crypto world digested news that FTX founder Sam Bankman-Fried had been arrested in the Bahamas, along with a report about government scrutiny of Binance.

The company’s CEO, Changpeng Zhao, known as “CZ”, declined the cash flow “As usual” for the world’s largest cryptocurrency exchange.

“I’ve seen this before,” wrote on Twitter. “Some days we have net withdrawals; some days we have net deposits.”

The company gave reassurances in a statement that withdrawals “were made easy”.

However, there were also signs of unease, when Binance halted withdrawals of a so-called “stablecoin,” called USDC, for about eight hours on Tuesday.

It reminded crypto investors of the lead-up to the FTX crash just a month ago. FTX had to halt withdrawals when customers panicked over questions about its solvency. In the end, the company filed for bankruptcy, revealed that it did indeed have financial problems, and at least $8 billion of customer funds disappeared.

According to CZ, Binance’s situation on Tuesday was not comparable, blaming the bank’s closure.

But in a staff note obtained by NPR, CZ also noted that Tuesday wasn’t one in which the sector where it also reigns as celebrities and influencers is experiencing a “historic moment.”

“While we expect the next several months to be bumpy, we will get through this difficult period,” he wrote. “And we’ll be stronger because we’ve been through it.”

He told Binance employees that “this organization is built to last” and “will survive any crypto winter.”

Cat Cradle of Cryptocurrency

However, FTX’s rapid collapse, from being a $32 billion behemoth to bankruptcy, has left many wondering which parts of the market it will survive. Although investigators are still piecing together what happened, the crash revealed how closely interconnected many of the biggest players in crypto were.

Just over two weeks after the fall of FTX, cryptocurrency lender BlockFi has filed for bankruptcy, after halting withdrawals and asking customers not to deposit. It was one of the few companies saved by FTX as the “crypto winter” started a few months ago.

As the Federal Reserve has been raising interest rates to fight high inflation, investors have lost their appetite for risk and almost anything technical. Cryptocurrency values ​​are plummeting, with Bitcoin down more than 60% this year.

Another part of the crypto tangle is Genesis, which is facing the possibility of bankruptcy. He Said In a tweet last month Its derivatives business had about $175 million locked into an FTX account.

One of its units on Thursday was appointed to the creditors committee in the FTX bankruptcy case by a US Department of Justice trustee, giving it power to shape how FTX pays its debts.

binance, at the same timeAnd the He was at the epicenter of FTX’s internal meltdown. In November, after a report raised questions about FTX’s finances, and its intimate relationship with Alameda Research, the private hedge fund founded by Sam Bankman-Fried, CZ decided to divest from its holdings of the FTX cryptocurrency specie, called FTT.

This led to what was essentially a bank scramble, and with the future of FTX highly uncertain, Binance signed a non-binding letter of intent to acquire FTX.

Hours later, CZ retracted that offer, but they all included an FTX solution.

Since then, Binance has gone to great lengths to ensure that it is financially sound.

The company hired accounting firm Mazars to revise its numbers, and provided an assessment of its finances to clients, describing it as “evidence of reserves.” Several crypto companies, including Binance and Crypto.com, have used Proofs of Reserve to indicate that enough companies have sufficient reserves on hand to back up customer deposits.

But on Friday, Mazars decided to stop providing such evidence to any crypto company, at least temporarily, saying the public does not understand that the reports are so limited.

“It does not constitute an assurance or audit opinion,” Mazars said in a statement. “Instead, they report limited results based on agreed actions that were implemented on the topic at a historical point in time.”

Binance is also being investigated by the Department of Justice, and Reuters recently reported that prosecutors are “delaying completion” of that investigation.

“As has been widely reported, regulators are doing a quick review of every crypto company,” a Binance spokesperson told NPR in an email. “This nascent industry has grown rapidly and Binance has demonstrated its commitment to security and compliance.”