Is the fear of a stock market collapse justified?

Binance is under increasing pressure. The world’s largest bitcoin exchange has faced a growing number of investors over the past few days who have been gradually withdrawing their cryptocurrencies from the exchange. From December 13-14 alone, more than US$6.6 billion passed through Binance in 24 hours. On the other hand, there was uncertainty in parts of the crypto space still recovering from the FTX disaster: are the coins safe on the exchange? Would Binance be able to withstand a bank run?

In an interview with US broadcaster CNBC, Binance’s boss tried to allay concerns. However, it does not cut the best figure.

Interview with the boss of Binance: “We are doing well financially”

When asked about these concerns, Changpeng Zhao initially dismissed them. Binance, according to the head of the Bitcoin exchange at the start of the interview, has no problem refunding its customers:

People can withdraw 100% of Binance assets. We will have no problem there. For any day.

Changpeng “CZ” Zhao, CEO of Binance

As Andrew Ross Sorkin notes in the interview, Binance owns $60 billion worth of cryptocurrencies. However, no one knows how much Binance has outstanding debts. According to the investigator, such uncertainties could easily be removed by an “audit”, that is to say an independent examination of the books. Does the bitcoin exchange plan an audit for the future?

We are working with various companies to prepare for an audit here. But: Binance doesn’t owe anyone money. Binance does not have loans from other companies. We just don’t have that. You can request any funds or VC in the ecosystem […]. This is where we differ greatly from FTX.

Changpeng Zhao

However, CNBC isn’t letting CZ’s “you can ask any question” sideline. When asked why an audit is so difficult or why nothing is being done about it, the Binance boss stumbles.

In our industry, we don’t depend so much on trust. We are more concerned with verification […]. However, we work with several auditing companies. Interestingly, however, many auditing firms are afraid to work with crypto companies. […]. Audits cannot uncover all problems.

Changpeng Zhao

Becky Quick then draws her attention to the fact that there are audit companies that audit crypto companies. However, it refers to the “Big Four”, ie the audit firms Deloitte, EY, KPMG and PwC. However, she asks him if it could be that the bitcoin exchange is not able to provide the necessary information and the auditing firms are worried about it. CZ’s response:

Many of them do not know how to properly verify a crypto exchange. […] There is a lack of credibility.

Changpeng Zhao

But Quick isn’t giving up. The recent “audit” the exchange did with Mazar is not a real audit. Binance simply figured out what they were willing to disclose and then vetted it. But Zhao eludes:

We pay no attention to Coinbase. Coinbase has a much smaller jurisdiction.

Changpeng Zhao

Connections to FTX

Finally, he is asked about Kevin O’Leary. The day before, he had testified in court that CZ had been paid in 2021 for his share in FTX.

Under US law, this money can be recovered if it is found to have come from fraudulent business models. When asked if he or Binance would be able to repay that money, the Bitcoin exchange boss stayed the course: he dodged.

Kevin O’Leary just says things that don’t make sense. They make no sense. It is not logical. […] Kevin is a liar.

Finally, CZ admits that SBF paid him $2.1 billion to sell him his stake in FTX. However, his memory is no longer so good when it comes to this deal.

Part of it was in FTT tokens which are worthless now. […] But I no longer know the exact composition. […] But we still have all that. In fact, we forgot [dass es das Geld gibt]. […] In our industry, everything is very transparent.

Changpeng Zhao

What follows is CNBC’s further investigation into whether, if in doubt, he is able to return the money. After new attempts to escape, he must finally respond.

But the answer remains vague: “We are doing well financially”. When Quick insists: “Also, to reimburse 2.1 billion US dollars? “, CZ is content to answer: “We will let the lawyers take care of it.

Is the world’s largest bitcoin exchange facing the same fate as FTX?

One thing is certain: Changpeng Zhao did not cover himself with fame in this interview. Also, the lack of auditing of the books and the lack of auditing of the auditing companies so far raises some doubts. If the current uncertainty in the crypto space were to spread further and there were to be a bank run on the Bitcoin exchange, it could have a bigger impact. This would most likely also put pressure on Bitcoin price, BNB price, and the entire crypto market.

However, it is important to remember that Binance should not be equated with FTX. Although FTX willfully and knowingly misappropriated client funds, Binance has no indication that something like this could threaten Binance.

However, this does not protect the market from irrational actions. So there is always the possibility of a bank run. And here it applies: bank runs are always problematic, whether in the traditional sector or in the crypto sector. Even if there are upheavals here, the important thing is to stay calm.

If you want to be on the safe side, you are generally advised to withdraw your coins from centralized exchanges. Finally, there are hardware wallets for secure storage. And for investors who enjoy lending, staking and the like, there are decentralized exchanges.

For Binance, it is now important to take care of an audit as soon as possible in order to regain the broken trust.

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