Crypto Exchange Binance Sees Spike in Withdrawals From Spooked Investors

Crypto exchange FTX has been criminally charged with being shot through with fraud from inception.

The news, revealed in a federal indictment unsealed Tuesday morning (Dec. 13), may further rattle the already shaky crypto industry.

“I don’t trust a single piece of paper from this organization,” newly installed FTX CEO John J. Ray III told the House Financial Services Committee this morning (Dec. 13).

While the arrest of CEO Sam Bankman-Fried and the House hearing on FTX have captured the attention of the crypto world’s outside observers, major moves by the remaining companies in the space to shore up their own houses, so to speak, are being made to reassure their own clients and the broader industry.

Increased Scrutiny

Following FTX’s collapse, other crypto exchanges, including Binance and Coinbase, have found themselves in the spotlight.

Inquiries into FTX’s failure have revealed, and further educated consumers about, the ways in which the doomed exchange misappropriated their funds.

While every company is different, all exchanges are dependent on the trust of their users.

For its part, Binance, the world’s largest cryptocurrency exchange, whose market leadership was further cemented by FTX’s failure, is now under pressure from authorities regarding its compliance with U.S. anti-money laundering laws, as relayed by PYMNTS Monday (Dec. 12).

Binance’s attempt to show a “proof-of-reserves” report in order to shore up confidence recently backfired, as even the auditors who worked on it have since distanced themselves from any broader implications being drawn from the narrow scope of their findings.

As covered by PYMNTS, the report by international auditing firm Mazars only focused on Binance’s bitcoin holdings and liabilities. The scope of their audit did not expand to the many other cryptocurrencies held and traded on Binance.

“Had we performed additional procedures, other matters might have come to our attention that would have been reported,” the auditors wrote in their statement.

Binance has not returned a request by PYMNTS for comment. Binance CEO Changpeng Zhao (CZ) tweeted “Ignore FUD (fear, uncertainty, and doubt). Keep building!” to his nearly eight million followers in response to concerns over the report.

CZ’s tweet didn’t quite work as intended to calm the exchange’s spooked investor audience, and the exchange has seen over a billion dollars in customer withdrawals over the past 24 hours.

Stablecoin Shakeup

As reported by PYMNTS, Binance on Tuesday (Dec. 13) announced a pause on withdrawals of the stablecoin USDC.

Stablecoins have been described as being both the glue linking crypto assets to real-world values, as well as the oil that allows marketplace engines to easily exchange funds. To say they are mission critical to the entire crypto industry would be an understatement.

Coincidentally, rival exchange Coinbase had a hand in founding USDC. Coinbase last week (Dec. 8) told its own user base to switch from Tether (USDT) and other pegged digital stablecoin assets to the “trusted and reputable” USDC. The platform indicated it would allow users to perform the swap for free.

Binance said back in September it would automatically convert user balances and new deposits of USDC and two other stablecoins into its own internally developed stablecoin, Binance USD (BUSD). Binance indicated it will continue to allow Tether to serve as a relied-upon stablecoin across its exchange.

Tether today (Dec. 13) issued a public statement reiterating its solvency and announcing that it will be winding down its lending business, which has likewise come under scrutiny in recent weeks.

“As we see the ‘media darlings’ of crypto being exposed one by one for causing incalculable damage to people and the industry, their online allies and mainstream media are again desperately trying to make Tether the story,” the company’s statement reads.

Whether the release’s defensive tone serves to inspire the confidence of investors remains to be seen.