Binance’s controversial proof-of-reserve report, aimed at calming investors, did not have the expected effect. Evidence of reserve further fuels speculation about the company’s finances. There is an atmosphere of panic among investors. The question in mind is: If Binance crashes, what will be the price of Bitcoin? Here are the details…
Binance at the center of criticism
After the sudden collapse of FTX, investor confidence in the cryptocurrency ecosystem has plummeted. Also, the rumors about high exits on Binance have made crypto investors even more alarmed. Evidence of reserve has further fueled speculation about the company’s financing. The publication of the report led to speculation that Binance is not 100% collateralized. However, it has raised significant concerns about the solvency of the stock market. Bitcoin price and the broader cryptocurrency market also suffer from these concerns. The biggest question on the minds of investors is: If Binance goes down, what will be the price of Bitcoin?
Binance has hired Mazars, the audit firm Trump uses, to develop an audit report. Its focus was on assets stored for users of the exchange. Binance has stated many times before that it has more than enough funds to cover client funds. Still, Mazars’ report was not well received by investors. Rumors arose on Twitter that the reports were fake. Speaking on the subject, former SEC Internet Enforcement Chief John Reed Stark said:
Binance’s “proof of reserve” report does not address the effectiveness of internal financial controls. Likewise, it does not express an opinion or result of assurance and does not vouch for the figures. I’ve worked at SEC Enforcement for over 18 years. This is how I define the red flag.
Cryptocurrency exchanges continue to exit
Stark also criticized Binance for having hired Mazars to prepare proof-of-reserve reports, rather than using the services of one of the four major audit firms. Blockchain intelligence platform Nansen also published a report. According to the report, fears about Binance being collateralized triggered large withdrawals. However, investors have withdrawn more than $2 billion in just two days. The figure marks the highest net outflow on Binance since FTX exploded. Binance then temporarily paused withdrawals of the USDC stablecoin.
However, the exchange clarified that the transaction was made to perform a “token swap”. However, significant withdrawals may indicate that investors fearfully want to keep their investments to themselves. Also, as we reported on Cryptokoin.com, Reuters reported that CZ is facing a lawsuit for potential money laundering and criminal enforcement violations. However, other crypto exchanges are also witnessing significant exits.
What happens to Bitcoin price if Binance crashes?
Meanwhile, the outlook for risk assets improved after the CPI data were released. However, crypto-specific news continues to dampen investor confidence. The shaky trust and potential troubles in Binance could seriously damage the crypto ecosystem. Bitcoin fell over 20% in the crash of FTX in early November. Also, due to the bankruptcy of FTX, approximately $250 million was wiped from the total crypto market capitalization. Experts say that the potential collapse of Binance will have a much worse effect than FTX. He also fears that it could have serious and long-term consequences for the entire Bitcoin-centric ecosystem.
First, the overall risk sentiment surrounding Bitcoin and crypto is much worse than it was before the collapse of FTX. Second, while FTX focuses mostly on the US, Binance is a truly global crypto exchange. Any major nuisance on Binance can have a snowball effect. However, it could ignite a new round of overdrafts leading to more bankruptcies. This week, investment giant VanEck predicted that the Bitcoin price could come under pressure in early 2023 as several major mining firms are on the verge of collapse. VanEck stated that Bitcoin could drop as low as $10,000 in the first quarter of 2023 and eventually recover to $30,000 later in the year.
Bitcoin price may face selling pressure
Despite Binance’s assurance that it can still withdraw deposits while withdrawals stabilize, the crypto community is increasingly nervous about the financial situation of the world’s largest digital asset exchange.
A Binance breakout, while seemingly unlikely, is poised to have a much stronger negative impact on the entire crypto community, given the company’s global footprint and importance. Potential problems in Binance, which comes a little over a month after the collapse of FTX, could lead to another big problem for the Bitcoin price. The possible collapse could create a selling wave for Bitcoin. While this is an obvious disaster for many, long-term Bitcoin investors will likely find it an attractive buying opportunity.
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