When Changpeng Zhao called FTX’s bluff and withdrew billions, the latter firm revealed it ran out of funds. “CZ’s” sale of FTX’s token caused FTX to file for bankruptcy.
Now that it is under bankruptcy proceedings, FTX’s creditors may challenge Binance’s withdrawal. This will prove very disruptive for the cryptocurrency market. Binance users withdrew $1.35 billion of Bitcoin in the days following FTX closing off withdrawals.
One day last week, Binance withdrawals jumped to $3 billion in just 24 hours.
Binance’s liquidity is at risk of drying up if customer confidence weakens. Binance has no choice but to honor withdrawals. Its confidence in meeting customer fund needs might end the panic.
Regulators might scrutinize various aspects of Binance’s business. For example, it wants more than Binance’s proof of reserve report. For now, Binance’s report release from Mazars, a financial audit, tax, and advisory firm, should ease customer concerns. Mazars reported that Binance’s customer bitcoin reserves are overcollateralized.
Skeptical customers will question the assessment. The report is not an official audit. Furthermore, as customers withdraw assets from the exchange, it could strain Binance’s liquidity.
Crypto investors will continue to worry about Binance’s prospects. FTX said, days before the bankruptcy filing, that it had enough funds. Investors are never sure if any exchange is capitalized well enough.
