Binance, a cryptocurrency exchange, has seen investors withdraw $1.9 million (PS1.62bn) of their money in just 24 hours. This is because of the fallout of the collapse of FTX Exchange.
Everyday investors are withdrawing their funds from exchanges that are not connected to FTX because of the charges against Sam Bankman-Fried, former chief of FTX.
Competitor Binance was run by Changpeng Zhao (“CZ”) and announced via Twitter that it had temporarily halted withdrawals from its USDC stablecoin to help stabilize the market.
According to Nansen, attempted withdrawals from Binance’s crypto exchange were at their highest level since June.
Nansen spokeswoman said that Binance’s withdrawals have been increasing because of uncertainty over its reserves report.
Fears of panic in the industry after Mr Bankman-Fried’s arrest for alleged “financial offenses” in the US, Bahamas and other countries. There were also headlines about Bankman-Fried’s lifestyle and alleged wrongdoings. Binance and anyone else associated with it have not been charged.
Before Mr Zhao’s criticism, Mr Bankman Fried was seen by many as the industry’s conscience. He liaised with regulators to find ways to remove crypto from its “wild west” reputation.
The fact that the crypto industry’s supposed white knight has been implicated in such serious allegations could spell doom for crypto’s reputation among rank and file investors.
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Binance said that the company is stable and has minimized the negative impact of widespread skepticism. A spokesperson for Binance stated that the company always has enough money to fulfill withdrawal requests.
Industry professionals disagree on whether the concern over Binance is due to Mr Bankman-Fried’s arrest. Patrick McCorry, a crypto researcher, said that he doesn’t believe the arrest of SBF will have any impact on Binance. It appears that the audit report they published has backfired on investors. So people are withdrawing their funds as it is safer to do so – and then deposit them later – rather than keeping the funds on the platform.
McCorry believes that Binance’s imminent collapse is overhyped. He stated that the long-term issue is not about regulatory pressure, particularly since entities such as the SEC can be quite hostile. Given the increased scrutiny that Mr. Fried has placed on the wider crypto industry, this pressure will likely grow.
Now it seems that regulators will continue to clamp down on crypto, worried about the impact on ordinary people’s financial well-being as they continue to pour their money into an industry filled with bankruptcies and business failures.
Regulators are particularly concerned about the impact on ethnic minorities that are poor. According to Pew Research Centre, more Americans of Asian, Black, and Hispanic heritage are likely to invest in cryptocurrency than those of white Americans.
Chairman of the US Federal Reserve Jerome Powell stated in April that more regulation was required to maintain customer trust.
But supporters of the cryptocurrency experiment think that this is an exaggeration. McCorry thinks that the current problems Binance is facing reflect a larger concern about the cryptocurrency market as in many other traded sectors.
Currently, there is not much fear on the market, according to him. This is because we must rely on legacy Web2 architecture in order to protect crypto worth billions of dollars. Several of these companies offer assurances from external auditors, which in practice seems to backfire since it raises awareness about the problem.
Crypto enthusiasts like Mr McCorry see the current issues in the sector as little more than roadblocks. They are motivating and driving them to make deeper, more meaningful changes to the way that the finance sector operates.