Withdrawals at Binance Raise New Concerns

• Crypto investors are withdrawing assets from Binance at an alarming rate
• The world’s largest cryptocurrency exchange has seen $12bn of assets leave the platform in 60 days.
• Investors are left wondering if the capital outflows represent a run on the bank or ‘business as usual.’

Crypto traders are facing fresh concerns on the back of reports that the largest cryptocurrency exchange in the world is haemorrhaging money. Binance, led by crypto guru Changpeng Zhao, recorded net withdrawals of $300m in one day last week as spooked investors withdrew assets.

The sector has rebounded after the demise of Sam Bankman-Fried’s FTX platform, but events at Binance are raising fresh concerns that there could be a ‘run on the bank’. The recent reports come on the back of claims that in early December, Binance saw $3bn of assets withdrawn in one week.

Is this a Run on the Bank?

$3bn represents 4% of Binance’s assets and can be explained as being in line with the natural workings of a notoriously volatile sector. The $12bn of assets reported to have flooded out of the platform is more concerning, equating to 15% of Binance’s assets.

Unsurprisingly, Changpeng Zhao has taken to social media platforms to reassure investors, and a statement from the firm confirmed: “there is no margin or leverage involved and these stablecoins are backed 1:1. We will also try to establish more fluid swap channels in the future.”

Few have challenged the assertion by Binance that its assets are fully backed, but many are still concerned by reports filtering into the market. For starters, there is the fact that other platforms, such as FTX, for a considerable period, insisted their assets were fully backed. But when they finally collapsed, it was evident that it was not the case.

It’s also worth monitoring the price of Binance’s native coins. Binance Coin (BNB) and Binance USD (BUSD) lost 29% and 40% of their respective value over the last two months. Forbes estimates that leaves about 29m BNB tokens at Binance, which is 51% less than was the case on November 10^th, with BUSD stablecoins at the same time falling in number by 40%.

Perhaps the best indicator of how concerned the market is about the health of Binance is the prices of cryptos themselves. The collapse of FTX drained investor confidence and dragged the price of Bitcoin and Ether to year-to-date lows.

The crypto sector is well known for throwing up surprises. Despite events at Binance, BTC and ETH have managed to shrug off concerns and are up 4.01% and 10.96% year to date.

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About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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