Binance, the world’s largest centralised crypto exchange, has been suffering from large outflows and the crypto world’s troubles do not yet point to the industry’s sustainable recovery, an analyst has said.
Swiss private bank and wealth manager Julius Baer said in comments published Thursday that blockchain data from Nansen shows that Binance’s reserves, which at their peak were close to $70 billion, had dropped to $55 billion, with withdrawals overwhelming deposits.
“This was largely triggered by a report released by an audit firm that was commissioned by Binance itself,” said Kelly Chia, equity research analyst, Asia, Julius Baer.
“Binance reiterates that all deposits are backed 1:1 without leverage, that its capital structure is debt-free, and that it has never commingled customer funds.”
The fear, uncertainty and doubt (FUD) was triggered by an audit report from Mazars in the previous week, and a subsequent temporary pausing withdrawals of the second-largest stablecoin, USDC, Chia said.
Chia quoted CEO Changpeng Zhao, known as CZ, who said the company had not been in talks with a Big Four accounting firm, adding that following the FTX debacle, many reputable auditing companies are reluctant to work with crypto businesses for fear of future reputational damage.
“As a centralised exchange (CEX), Binance needs to enable trading of a lot of different coins/tokens, but having a majority of reserves in BTC, ETH and stablecoins is essential,” Chia wrote.
“This is because in risk-off times, most users would trade their crypto holdings into stablecoins to preserve value. In the worst-case scenario, users will deposit a low liquidity altcoin, swap it for a stablecoin, and then take it out, leaving Binance to deal with the deposited altcoin.”
Chia said the latest information showed Binance had 52.9% of its reserves in stablecoins, and that centralised entities like exchanges are bound to continue to play a critical role in the crypto world. But checks and willingness to be regulated will provide assurances, he said.
“The troubles in the crypto world, along with tight financial conditions in the traditional finance world, do not yet point to a sustainable recovery,” he concluded.
CZ, who is active on Twitter and often responds to market news or reports about Binance on the social networking site, tweeted on Thursday, saying that crypto is not a good tool for illicit activities as blockchains are transparent. On Wednesday, he said Web3, crypto, blockchain will continue to grow.
Binance received a regulatory approval in Abu Dhabi last month, when the exchange announced it had received a Financial Services Permission from the Financial Services Regulatory Authority.
Speaking at Abu Dhabi Finance Week, CZ said confidence was shaken in the industry by FTX fallout, but said his exchange was the most licensed on the planet, and that the industry must work with regulators to ensure greater transparency.
(Reporting by Imogen Lillywhite; editing by Cleofe Maceda)