Many major cryptocurrency firms have faced smaller liquidity crises in the past month since the fall of FTX—and now Binance, the largest crypto exchange in the world, is having to calm its investors.
- Rival crypto exchange Binance played a major role in the collapse of FTX in early November, facilitating one of the largest collapses in crypto history.
- The company released key data to the public about FTX’s liquidity crisis and considered purchasing the exchange before deciding not on Wednesday, November 9 after the extent of the company’s failure was revealed.
- It also promised a bailout program for negatively affected FTX investors.
- Binance is struggling with its own issues though, as investors are getting cold feet and the company is struggling to reassure users that holdings are safe.
Why it’s Important
Binance is currently the world’s largest cryptocurrency exchange, and its fate will affect the future of crypto should a shortfall happen to it. It has promised to be more transparent in its dealings to assure investors but hasn’t provided meaningful information to do so yet, The Wall Street Journal reports.
It recently hired an outside accounting firm to perform a “Proof of Reserve” report of its current liabilities and assets, which it says will assure users that all assets are kept in reserve one-to-one. This will not fully assure investors though as the company hasn’t made any promises to provide evidence of its liquidity.
The finished report suggests that Binance isn’t meeting its promised reserves.
“The reserve report, released Wednesday, is a five-page letter from a partner at the South African affiliate of the global accounting firm Mazars. It contained three numbers. The letter wasn’t an audit report, didn’t address the effectiveness of the company’s internal financial-reporting controls, and said Mazars did ‘not express an opinion or an assurance conclusion,’ meaning it wasn’t vouching for the numbers,” says The Wall Street Journal.
“We don’t know how good Binance’s systems are to liquidate assets to cover any margin loans. And we know in the U.S., even with all the good systems, banks have occasionally been caught off-guard. In light of what we’ve seen [with FTX], I don’t want to conclude that all the systems are that good,” says Rutgers University professor Hal Schroeder.