The collapse of FTX, Binance's competing cryptocurrency exchange, taught the crypto industry that it is very fragile and that anyone can walk away with your funds.
Now it is Binance itself that is involved in a series of not-so-encouraging episodes, which makes me think it will meet the same fate. I tell you about it below.....
#Why I believe Binance will fall and we should stop using it#
After the hecatomb that resulted for the crypto industry with the collapse of Sam Bankman-Fried's cryptocurrency exchange FTX, in recent months I'm seeing a lot of negative information about its competitor, Binance, which makes me think it will meet a similar fate.
I don't have a crystal ball, but those of us who cover the industry know what happens to most companies that grow so disproportionately in such a short time, and the Securities and Exchange Commission (SEC), the top regulatory body in the U.S., turns its eye on them.
These companies in the crypto industry usually go down, whether due to mismanagement, greed, or whatever you can imagine. Will this be the case for Binance in the coming months? Remember that it is an exchange that we use a lot in Latin America, mainly in hyperinflationary countries like Venezuela.
I don't know, but as the saying goes: "When your neighbor's beard burns, soak yours", so I've started looking for a replacement. In the meantime, a brief summary of what's going on in the SEC vs Binance battle royale that has the entire crypto industry on edge....
##Binance US sued by the SEC##.
For context, I should tell you that the SEC sued the US branch of the cryptocurrency exchange, Binance US, along with its international subsidiary Binance Holdings Ltd and CEO Changpeng "CZ" Zhao on June 5 for allegedly operating as an unregistered stock exchange.
In addition, the regulator also included in the lawsuit commingling billions of dollars of customer funds in an account controlled by an entity linked to Zhao. This is dangerous.
Since then, the SEC has repeatedly stated that it has been struggling unsuccessfully to obtain information from Binance US. And that's why.
##SEC accuses Binance US of non-cooperation##.
This September 15, as reported by CoinTelegraph, the SEC accused Binance.US of non-cooperation in the ongoing investigation, with the regulator highlighting that Binance.US's holding company, BAM Trading, had only submitted 220 documents during the discovery process.
In the wake of all of the above, a hearing was held on September 18 to discuss the SEC's motion seeking to compel Binance to turn over detailed information and make its executives more available.
##SEC warns about Binance US warrants ##SEC warns about Binance US warrants.
According to recently unsealed court documents, the SEC is focusing on the cryptocurrency exchange's asset collateralization practices. Specifically, auditors noted that Binance's custodian setup made it difficult to verify whether all customer assets were properly collateralized.
BAM has opposed the requests as "overly broad, burdensome and outside the relevant scope," proposing instead that both parties meet to negotiate the terms of the request.
##In apparent contradiction, CZ denies that Binance.US used Binance Custody##.
Cryptocurrency mogul Changpeng "CZ" Zhao has denied that Binance's US arm used Binance Custody, custody software provided by international subsidiary Binance Holdings Ltd (BHL), and subsequently rebranded as Ceffu.
This contrasts with earlier statements by the U.S. exchange's lawyers that Binance.US had used the custodial software.
The SEC's investigation points to the custody of Binance.US customers' assets as one of its main concerns. In fact, the regulator says Binance.US should be investigated further to unravel possible links to the global arm of the exchange.
If that is the case, Binance.US customers' assets are in practice held in Binance's own custody and at risk of being diverted or transferred overseas, observers add. Earlier, Binance.US had agreed that only U.S. personnel would have access to customer funds.
##Fiat withdrawals cut off for Binance users in the EU#.
According to media outlet CoinDesk, some Binance customers in the EU are unable to withdraw euros from the platform, due to the upcoming change in the cryptocurrency exchange's regional payment provider.
Paysafe, Binance's European payments partner, will stop serving the platform's customers on September 25, but several users in the region have been left without access to the service well before the deadline.
Binance told CoinDesk on Monday that Paysafe had put a "very small portion" of users on an "early shutdown review." It also said it was "very disappointed" with Paysafe's short notice of the move.
In June, following a "strategic review," the payments provider said it would stop offering its integrated wallet to Binance customers in the EU.
Binance faces increased regulatory scrutiny worldwide following last year's market collapse, which revealed mismanagement of customer funds and regulatory arbitrage at several high-profile cryptocurrencies, most notably the aforementioned FTX.
Cryptocurrency exchanges are also withdrawing - in some cases being forced to withdraw - from several European countries over regulatory issues.
Meanwhile, and in the midst of SEC lawsuits, Binance.US announced the layoff of a third of its staff, as well as the departure of its president and CEO. Later, it was learned that both the head of legal affairs and the chief risk officer decided to leave the company.
As a result of the turmoil, trading activity on Binance.US has fallen to new lows in September. The low point was $2.97 million, a significant drop from the same period in 2022, when trading volume hovered around $230 million.
At the beginning I commented that I am not sure that Binance will have the same fate as FTX, but given the news of the last few months, not at all encouraging, it does not hurt to take precautions.
Do you use Binance to store funds? And if you had to migrate them, where would you send them?