Crypto Exchange Binance Is Defending Itself Against Ongoing Bank Run, More Than $3B Of Client Funds Withdrawn
Jittery customers, fearing the safety of their investments on the Binance crypto exchange, made a bank run on Tuesday, withdrawing as much as $3 billion from the platform in 24 hours.
At its peak, Binance saw “as high as $3 billion in net outflows” over a 24-hour period, according to Andrew Thurman, content lead for blockchain analytics firm Nansen, CNN reported.
Negative headlines about the crypto industry have rattled users of the world’s largest crypto exchange. Reports about the years-long investigation by the U.S. Justice Department into Binance factored into investor nervousness, Nansen said.
Binance paused withdrawals of the stablecoin USDC on Dec. 13 while it carried out a “token swap.” This involves swapping one cryptocurrency for another without the need for fiat currency. A token swap could be a way for Binance to get more USDC quickly while the banks are closed in order to resume withdrawals for customers, CNBC reported.
Binance CEO Changpeng “CZ” Zhao tried to defend the bank run, tweeting that the customer withdrawals were business as usual.
“We saw some withdrawals today (net $1.14b ish). We have seen this before,” Zhao tweeted. “Some days we have net withdrawals; some days we have net deposits. Business as usual for us. I actually think it is a good idea to ‘stress test withdrawals’ on each CEX on a rotating basis.”
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It’s not good news when a crypto company has to pause withdrawals, MSNBC reported. FTX paused withdrawals before its November collapse and bankruptcy. Former FTX CEO Sam Bankman-Fried was arrested this week and crypto investors fear continued contagion across the industry. In the summer, crypto firms including lender Celsius had to pause withdrawals before ultimately filing for bankruptcy.
Days before FTX’s Nov. 11 bankruptcy filing, Bankman-Fried denied liquidity problems and insolvency rumors, tweeting, “A competitor is trying to go after us with false rumors. FTX is fine. Assets are fine. FTX has enough to cover all client holdings.“
Zhao has been accused of being responsible for accelerating rival FTX’s downfall by announcing that Binance would sell its holding of FTX’s digital token, triggering a surge of user withdrawals. FTX was ultimately forced to file for bankruptcy. In a blog post several days later, Zhao wrote that Binance “must lead by example … We cannot let a few bad actors sully the reputation of this industry.”
The bank run on Binance comes a month after the FTX bank run.
Binance has been under criminal investigation since 2018 by the U.S. Justice Department for possible money laundering and criminal sanctions violations. However, the DOJ is delaying the conclusion of the investigation, four people familiar with the matter have told Reuters.
Launched by Zhao in Shanghai in 2017, Binance now dominates the crypto industry, processing trades worth around $1.6 trillion in October — about half the entire crypto market’s trading volume. By comparison, FTX handled $230 billion in trades in October, according to data site CryptoCompare.
The stakes are high for the deeply troubled crypto sector, Reuters reported. If the investigation goes against Binance and Zhao, it could loosen Binance’s grip on the industry, strengthened by the recent collapse of rival exchange FTX.
Binance has argued that a criminal prosecution would cause havoc on the already-in-crisis crypto market. Reuters investigated Binance’s financial crime compliance in 2022 and found that Binance kept weak anti-money laundering controls, processed more than $10 billion in payments for criminals and companies seeking to evade U.S. sanctions, and plotted to evade regulators in the U.S. and elsewhere.
Binance disputed Reuters’ articles, insisting it is “driving higher industry standards.”
Despite the fear, uncertainty, and doubt (FUD) ripping through the crypto community, many stakeholders are optimistic that Binance will weather the storm and not have the same fate as FTX, Cointelegraph reported. Others predict that if Binance goes down, the entire crypto industry will go down with it.
Crypto analyst and government adviser Del Crxpto blamed the media for promoting Binance-related fear. “The media are trying to cause a bank run on binance. In the last several weeks they have attempted to push several narratives to this regards, with the latest being that binance did not pass an audit. The fact is, time is the #1 audit and binance has proven the test of time.”