Saturday, June 3, 2023

FTX Fiasco Fuels Mistrust of Large Cryptocurrency Platforms Like Binance and Coinbase

During the Great Depression, expression too big to fail – Too Big to Fail – was applied to large banks whose implosion posed a systemic risk. It was interpreted that his downfall could lead to such a deadly spiral that it was more worthwhile to succumb to the mismanagement of excessive risk-taking managers and protect them with public money. This universe is facing a similar scenario after the FTX cryptocurrency buying and selling platform went bankrupt. Much smaller in scale, but with the potential to create a wave of damage from which millions of small investors would not be safe.

binance is now too big to fail of industry, at least so that it existed as it has been known thus far. For this reason, in such an interconnected ecosystem, there is a potential for contagion when it is badly distributed, every news that sows doubt about its viability sets off alarm bells. Unlike the world that followed Lehman Brothers, where the idea of ​​financial institutions tending their own sails was discarded, and state intervention was instituted, there is no hope of any help in the event of a cataclysm. Is performed.

A red light flashed this week when it was revealed that Binance customers had withdrawn $1.14 billion in a single day on Tuesday. Its founder, Canadian Changpeng Zhao, acknowledged the outflow of funds, but was quick to clarify that the amount, while particularly high, was not even in the five days when the most money moved from its platform. “Some days we have net withdrawals, other deposits come in. business as usual For us,” he reassured.

CZ, as it is popularly known, has eight million followers on Twitter, and these days it is rising not only on social networks, but also in traditional media to reiterate the idea that Binance will suffer the same fate as FTX. Will not be harmed. His message is not always successful. “Getting licensed is the best way to discredit FUD” [siglas en inglés de Fear, Uncertainty and Doubt, miedo, incertidumbre y duda], he shared the news that his platform has received authorization to operate in Guam and American Samoa. In response to that message, someone reminded him that FTX was licensed to operate in multiple markets without being barred. Its founder, Sam Bankman-Fried – was arrested in the Bahamas this Tuesday at the request of the US. – is being accused of cheating. For misusing their customers’ money on a large scale.

In this nervous environment, CZ doesn’t hide. He denies rumors and false news about a crisis at his firm, maintains that deposits are coming back, and tries to prevent millions of cryptocurrency investors from panicking. The calmness that he radiates out of doors, however, becomes somewhat less obvious when he can express himself with the freedom and honesty of privacy. “While we expect the next few months to be turbulent, we will emerge from this challenging period stronger,” he wrote in a message to Binance staff.

It is not easy knowing the status of Binance accounts and the weapons available to deal with the crisis. Blockchain analysis firm Nansen this week estimated a net withdrawal of funds from the platform at $3,000 million over the past seven days, but its CEO Alex Savenik qualified that this is a very small proportion if one takes into account that It has some reserves estimated to be $60,000 million.

One of its biggest rivals, Coinbase, has more transparency obligations because it is the only one listed on Wall Street. And the news isn’t good. It reported a loss of $545 million in the quarter ended September 30. And that was before FTX exploded. The company has lost 85% of its value on the stock market since its launch in April 2021: it is currently worth just over $9,000 million, compared to over $85,000 million at its inception, after it was penalized following the FTX bankruptcy. is of greater value.


There is an atmosphere of mourning in the sector. Bitcoin, its main claim to attract customers, is down 75% since its all-time high in November 2021. Basim Al-Shoura, vice president of Austrian firm Bitpanda, believes that the bad moment for cryptocurrencies cannot be brushed aside. Other investment properties are suffering. “The focus is on crypto winter, but actually a normal winter. There is a war, high inflation…”, he points to the phone.

Executive understands skepticism spreading around the world after FTX collapse crypto, as it happened to others before. “When Lehman went bankrupt, mistrust hung over the banking system; in the end we are an ecosystem,” he pointed out. But he believes it is necessary to make a distinction. “It all comes down to regulation. We have auditors at KPMG who study our results so that individual investors can understand that we are a safe company that is not doing anything suspicious with its assets.

Raul Marcos, CEO of, estimates that bankruptcy and collapse do not change the thesis of the future success of cryptocurrencies. “Celsius, Three Arrows Capital, or FTX, companies that were in this space but were traditional, move the value of what cryptocurrencies and the ecosystem around them contribute: the need for decentralization, the importance of not relying on third parties , no matter how prestigious they may seem, and how valuable the freedom they give”.

Users can choose to store their cryptocurrencies in cold wallets without an internet connection, thus protecting themselves from exposure to companies like FTX or Celsius, which are susceptible to bankruptcy. But there are risks in this too: If they lose the keys or the device where they are stored, they are left without them. “99% of people who are asked to hold cryptocurrencies on their own will lose them,” Binance’s Zhao predicted, while intermediaries continue to be used.

tip on ftx

The first warning to Bahamian authorities that something was wrong with FTX came from CEO Sam Bankman-Fried’s inner circle of trust. Executive Ryan Salame, director and president of FTX Digital, alerted the regulator on November 9 (four days before the bankruptcy filing) that client assets “were transferred to Alameda Research to cover their financial losses,” according to an affidavit filed by the regulator. was done”, Christina Rolle referred to the courts. The Alameda Fund was created by Bankman-Fried, and its irregular financing with money from FTX is one of the phases of an open investigation against it. According to Salme, only three people could have made the transfer to Alameda: Bankman-Fried or two of FTX’s co-founders, Nishad Singh and Gary Wang. “Such actions may be considered criminal,” Rolle warns in the document. When tipped off, the police were ordered to investigate the matter, which eventually led to Bankman-Fried’s arrest.

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