BitcoinBTC, ethereum and other major cryptocurrencies are still feeling the effects of the shock FTX implosion last year—with one previously high-flying bank now teetering on the verge of collapse.
The bitcoin price staged something of a recovery in the first two months of the year but has seen its rally stall, weighing on the ethereum price and other cryptocurrencies and sparking “bull trap” warnings.
Now, the former chief of internet enforcement at the U.S. Securities and Exchange Commission (SEC) has predicted FTX rival Binance, the world’s largest crypto exchange, could see a run on deposits—potentially causing “devastating investor carnage.”
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“Binance is a shadow bank, minting their own counterfeit currency while providing limit-order books/brokerage/custody/clearing/settlement/etc. with no U.S. regulatory oversight or audit,” John Reed Stark, a former attorney for the SEC, posted to Twitter. “It’s FTX redux and an epic bank run seems inevitable.”
Binance has faced intense scrutiny in the months since FTX’s implosion, with questions being raised over whether it’s able to cover user withdrawals. In November, FTX buckled under the weight of $8 billion in customer withdrawals—a situation similar to a run on a bank that led to it declaring bankruptcy.
“Once withdrawals are suspended and a collapse begins, not only will Binance’s customers be cut off, but the customers also likely become unsecured creditors,” Stark added, pointing to how users have been treated in the bankruptcy proceedings for collapsed crypto companies FTX, CelsiusCEL, Blockfi and Voyager.
A Forbes investigation last month identified an apparent $1.8 billion hole in Binance’s finances. The company’s chief executive Changpeng “CZ” Zhao dismissed the accusations, claiming they “intentionally misconstruing facts.”
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Last week, U.S. lawmakers led by the influential Democrat senator Elizabeth Warren demanded Binance address the “eerily similar” situation to FTX regarding its U.S. subsidiary.
“Your companies’ apparent attempts at evading the enforcement of anti-money laundering laws, securities laws, information reporting requirements, and other financial regulations cast serious doubt on the stability and legitimacy of Binance and its related entities and on your commitment to your customers,” Warren and two other senators wrote in a letter addressed to the CEOs of Binance and Binance.US.
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