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Binance: crypto exchange could land with a FUD

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Before SBF and FTX fell from grace, FUD (fear, uncertainty and doubt) was the most hated acronym in cryptocurrencies. Changpeng Zhao, chief executive of crypto exchange Binance, once warned people that simply reading about FUD was likely to make them poorer.

CZ, as he is known, has become reflective as crypto prices have fallen. FUD had triggered a “stress test”, he claimed. Binance suffered outflows of $1bn on Tuesday. CZ says withdrawals cannot destabilise its business. Brave.

Outflows from Binance are part of a broader flight from cryptocurrencies amid plummeting prices. The company is grappling with particular problems too. This week, it was reported that the exchange is facing a criminal investigation over compliance with US money laundering and sanctions laws. In the UK, the Financial Conduct Authority warned last year that it was “not capable of” supervising Binance. Many high street banks halted transfers of cash.

Binance is too secretive to weigh up easily. Binance says it owns $60bn in crypto assets. That is meaningless without a statement of liabilities.

It appears to be the biggest platform for crypto trading, albeit that the statistics cannot be verified. Over the past 24 hours, spot and derivatives trades were worth $35bn, according to the website CoinGecko, compared with $1.3bn for US-listed Coinbase.

In late October, trading volumes on FTX were supposedly more than $17bn. If Binance could capture a fraction of this, its dominance would be unassailable

The hostility of regulators and the collapse of FTX should deter all but the most ardent risk-seekers, however. “People get hurt by one exchange and they generalise that,” CZ complains.

It is entirely reasonable to believe that interconnections between crypto businesses create systemic weakness. Terraform Labs crashed earlier this year. BlockFi was then in trouble but was rescued by FTX. Later, FTX went bust and BlockFi followed suit.

You do not have to be a crypto genius, if any exist, to join up the dots.

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