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Binance: FUD or legitimate questions?
By far, one of the biggest winners after the FTX collapse has appeared, at first glance, to be Binance. After having only a 7.82% market share of bitcoin supply on exchanges in 2018, its share is now 27.50% despite a much broader trend of bitcoin supply coming out of exchanges. The bitcoin balance on Binance now totals 595,864 BTC, which is 3.1% of the outstanding supply, worth $10.58 billion. This bitcoin belongs to its customers and reflects a growing market share trend over the past few years that has made Binance the world’s largest bitcoin and cryptocurrency exchange.
Binance now controls roughly 60% of spot and derivatives volume across the market. It’s hard to see how any exchange in the space can be a “winner” in the current market conditions, but an argument could be made for Binance, with the exchange’s growing strength in a decimated industry. Additionally, Binance’s BNB token, Binance’s native Layer 1 blockchain currency that competes with Ethereum, remains one of the best-performing tokens when valued in terms of bitcoins this year.
However, is this recent “strength” all that it seems or is it a facade? Over the past month we have learned that no company is safe in this industry right now (especially exchanges) and questions are growing about Binance’s practices, solvency, the value of the BNB token and the overall state of its business during the last few weeks. Is it FUD or legit? Let’s try to break some of them down, approaching the concerns from an objective and skeptical lens.
Binance Flows
We have seen significant exits from Binance across different tokens and bitcoins when looking at both Nansen and Glassnode tracking. Binance saw through ETH and ERC20 tokens 3 billion dollars leaving the stock market on its biggest single-day exit since June. Through Nansen’s total wallet tracking, all Binance balances are estimated at $62.5 billion, with around 50% of those balances in BUSD and USDT stablecoins.
Source: Nansen
According to Glassnode, the total exchange balance of bitcoins on Binance is down around 6-7% in the last day, after peaking on December 1st. Although balances remain above 500,000 bitcoins and Binance has shown an upward trend in bitcoin balances on the platform. this year, it’s a major move for departures in just 24 hours. As a general comparison, the trend in bitcoin exchange balances was a very different story for FTX, whose balance had fallen sharply since June. Binance’s exits over the last couple of days are somewhat alarming and raise questions: is this a one-time event and just routine, or is it the start of something more?
Binance sees its largest outflow of bitcoins in a 24-hour period.
Readers can track chain addresses provided by Binance for free here.
The main reason for concern is not whether Binance has Bitcoin/crypto or not. We can transparently see that the company controls tens of billions of crypto assets. What is not exactly clear, similar to FTX, is whether the company has commingled users’ funds or whether the company has any outstanding liabilities against users’ assets.
Binance CEO Changpeng Zhao (CZ) has said that the company has no obligations to any other company, but as the past few months have shown, words don’t mean much. While we do not claim that CZ is lying to the public about the state of Binance’s finances, we have no way of proving otherwise.
CZ’s response to whether the company was going to audit liabilities against users’ assets was: “Yes, but liabilities are more difficult. We don’t owe anybody a loan. You can ask around.”
Unfortunately, “asking around” is not a satisfactory enough answer for an ecosystem supposedly built around the “don’t trust, verify” ethos.
While there is no doubt that Binance is an industry giant in the crypto derivatives industry, how do we know that the company is not doing similar things to previous players when it comes to trading with clients using user funds and/or proprietary data. Things like Coinbase’s former legal director leaving Binance US last summer after just three months, as the CEO leaves one with a lot of questions.
To add to our skepticism, the price of the Binance exchange token BNB is near all-time highs in bitcoin terms, appreciating a staggering 828% against bitcoin in the last 785 calendar days.
Is BNB really worth about 14% of all bitcoins that will ever exist?
The coming weeks will be full of headlines about the state of global crypto regulation in a post-FTX world. In a 48-hour period, Reuters published news claiming that the US Department of Justice is split on charging Binance, Binance withdrawals for bitcoin and aggregated stablecoin pairs have hit all-time highs, and the token BNB exchange has fallen by 10% relative to bitcoin.
Out of an abundance of caution, we will continue to urge readers operating on any centralized exchange (of which Binance is definitely included) to look for self-custodial solutions. There have been too many cases of incompetence and/or misconduct by exchanges.
It’s not that we don’t trust CZ or Binance, it’s the fact that we don’t trust anyone
The whole point of bitcoin is that we now have an asset that isn’t really anyone’s responsibility. Verify ownership of an open distributed network with cryptography; do not rely on authorized IOUs. With the combination of regulatory concerns about the global crypto derivatives industry, a questionable exchange token with incredible relative performance over the past two years, and a shaky proof-of-reserve token, which was incorrectly claimed to be an audit and industry CEOs took notice. — We feel the need to urge our readers to assess their counterparty risk.
