Bad news about crypto exchange Binance has been piling up in the last 48h. Is it all FUD, revenge for the FTX crash, or something else? Let’s take a look at what we know so far.

US Justice Department May Charge Binance Execs For Money Laundering

​Binance reportedly processed billions in illegal payments since 2018. According to a report from Reuters, “federal prosecutors involved in the case believe the evidence already gathered justifies moving aggressively against the exchange and filing criminal charges against individual executives including founder Changpeng Zhao”.

Sources involved with the matter claim that Binance is under investigation for unlicensed money transmission, money laundering conspiracy, and criminal sanctions violations. On top of that, there are claims that the company maintained weak anti-money laundering controls and withheld information from regulators.

These are serious allegations. And if they turn out to be true, then it’s just a question of when, not if, there will be charges against Binance execs in the US.

How much of an issue will that be for Binance? For this, the prosecution of BitMEX acts as a useful example. In 2020, the crypto exchange was charged by the US Commodity Futures Trading Commission (CFTC) and the Financial Crimes Enforcement Network (FinCEN) for failing to implement and maintain a compliant anti-money laundering program and for failing to report suspicious activity. Eventually, BitMEX paid $100 million to settle the case.

Binance’s Proof Of Reserves Raised Red Flags

After the FTX crash, centralized exchanges took many steps to ensure proof of reserves and bring more transparency to their asset structure. Binance has also published a report on its wallet addresses and commissioned an external company to carry out an audit.

However, the published report leaves some important points open:

We need to note a few things here. The first is that Binance has a very complex corporate structure. Also, Binance is a private entity that doesn’t have the disclosure requirements of a publicly traded entity. This could be an explanation for some of the gaps in the report — it’s simply hard and time-consuming to audit all assets with so many related entities involved.

However, CZ simply claiming that they don’t have any liabilities without showing further proof is somewhat shady. After all the crap happening with FTX, does he really think people will just swallow that?

Crypto Exchanges Reveal Their Reserves. Can You Trust Them?

Following the FTX crash, many crypto exchanges introduced proof of reserve in order to gain more trust from their…

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Binance Users Are Becoming Nervous

All of these things don’t leave the best impression. Against the background of the FTX crash, all this makes Binance users more insecure. And the current numbers confirm that sentiment.

According to Nansen, there is a spike in withdrawals from Binance in the last 24 hours with a net flow of -$1.6 billion in ETH and ERC20 tokens.

At the same time, BNB which powers Binance’s BNB Chain ecosystem is crashing. Currently, BNB hast lost about 7%.

This has the potential for more problems. Because any liabilities Binance has backed by BNB might become undercollateralized. Now CZ himself said in a tweet that you should never use your own token as collateral. But you never know…

The Takeaway

Let’s summarize. Binance had an audit carried out that left essential questions unanswered. At the same time, trouble seems to be looming in the form of a possible indictment by the US Justice Department.

So it’s no wonder that Binance users are increasingly withdrawing their assets from the crypto exchange.

Is this nervousness justified? Given the events of the last few months, I think so. My recommendation stays that you should avoid having funds on any crypto exchanges, including Binance.