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As it tries to boost confidence, filings reveal that Binance’s books are a black box

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Binance, the largest cryptocurrency exchange in the world, is working to restore confidence following a spike in customer withdrawals and a sharp decline in the value of its digital token.

The exchange claimed that because of its strong financial position and “we take our responsibility as a custodian seriously,” it managed net outflows of about $6 billion over 72 hours last week without “breaking stride.” Changpeng Zhao, the founder of Binance, promised his company would “lead by example” in embracing transparency following the demise of rival exchange FTX last month.

The core of the company, the massive Binance.com exchange that has handled trades worth over $22 trillion this year, is largely hidden from the public view, according to a Reuters analysis of Binance’s corporate filings.

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Binance refuses to disclose its location or that of Binance.com. It withholds basic financial data like revenue, profit, and cash on hand. The business has its own cryptocurrency, but it won’t say what impact it has on the balance sheet. Customers can trade on margin with borrowed funds and receive loans secured by their crypto assets. However, it doesn’t go into detail about the size of those bets, how exposed Binance is to that risk, or how much money it has set aside in reserves to pay for withdrawals.

Unlike its American rival Coinbase, which is listed on the Nasdaq, Binance is not required to release comprehensive financial statements because it is not a publicly traded company. Industry data also show that Binance hasn’t raised outside funding since 2018, so it isn’t currently required to disclose financial details to outside investors.

Binance has actively resisted oversight. According to company messages and interviews with former employees, advisers, and business partners, Zhao approved a plan by lieutenants to “insulate” Binance’s main operation from U.S. regulatory scrutiny by establishing a new American exchange. Zhao asserted that the unit was established with the help of reputable law firms but denied having approved the plan.

Since Binance accounts for more than half of all trading volume in the cryptocurrency market, U.S. regulators are particularly interested in how it conducts business. According to Reuters, some prosecutors think they have enough evidence to charge Binance and some top executives. The company is under investigation by the U.S. Justice Department for potential money-laundering and sanctions violations.

Filings were made by Binance units in 14 jurisdictions where the exchange claims to have “regulatory licenses, registrations, authorisations, and approvals”. Several member states of the European Union, Dubai, and Canada are among these places. The authorizations have been noted as significant steps in Binance’s “journey to being fully licensed and regulated around the world,” according to Zhao.

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According to the filings, these units seem to have provided authorities with only a limited amount of information about Binance’s operations. For instance, the amount of money moving between the units and the main Binance.com exchange is not disclosed in the public filings. Several of the units appear to be inactive, according to the Reuters analysis.

These neighborhood businesses, according to former regulators and executives from Finance, are merely window dressing for the main unregulated exchange.

Co-opting the nomenclature of regulation to create a veneer of legitimacy.

John Reed Stark, a former director of the U.S. Securities and Exchange Commission’s Office of Internet Enforcement, claimed that the group was “coopting the nomenclature of regulation to create a veneer of legitimacy.” Even more so than FTX’s operations, according to Stark, are Binance’s. In regards to its financial situation, “there is absolutely no transparency, no sunlight, and no confirmation of any kind.”

The analysis by Reuters of the filings for the units in the 14 jurisdictions, according to Binance Chief Strategy Officer Patrick Hillmann, was “categorically false.” The amount of financial and corporate information that must be disclosed to regulators in those markets is enormous, he said, and frequently necessitates a six-month disclosure process. Comparing the exchange to privately held businesses like American candy maker Mars, he continued, “We are a private company and are not required to publicize our corporate finances.” Mars said in a statement that comparing its corporate governance and financial reporting standards to Binance’s was “absurd,” and that its products and services are “highly regulated.”

Hillmann also pointed out that the founder of FTX is facing fraud charges from American authorities. He asserted that “it would have been fraud regardless of what regulations were in place” if those allegations are accurate.

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A puzzle needing to be worked out

Analysts blamed the DOJ investigation and concern over how cryptocurrency exchanges manage user funds for Binance’s sharp increase in outflows last week. Additionally, some crypto token withdrawals were halted by the exchange. Binance’s efforts to reassure investors on Friday were thwarted when an accounting firm it hired to confirm its reserves stopped working with cryptocurrency companies.

Zhao’s public comments, previous company statements, blockchain data, and venture capital deals all provide hints about Binance’s finances.

According to Binance, there are over 120 million users. Zhao stated in June that its trading volumes would reach $34 trillion in 2021. Last month, he claimed in an interview that “90-something percent” of Binance’s revenues come from cryptocurrency trading. He added that the business is profitable and has “fairly large cash reserves.” According to PitchBook data, Binance has made over 150 venture investments totaling $1.9 billion since 2018. Following the collapse of FTX, Zhao also established a $1 billion fund to invest in struggling cryptocurrency businesses.

However, despite the availability of trading volume data to the general public, reliable estimates of Binance’s trading-dependent revenues are hard to come by.

For spot trades, Binance levies fees of up to 0.1%; the fee structure for derivatives is more complicated. Based on information from researcher CryptoCompare and spot trading volume of $4.6 trillion in the year leading up to October, Reuters estimated that Binance may have made up to $4.6 billion in revenue. Binance may have made up to $6.4 billion in revenue by levying fees of up to 0.04% on its $16 trillion in derivatives volume.

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According to Joseph Edwards, an independent investment consultant, Binance’s promotions like zero-fee trading and other discounts could have contributed to lower revenues. The figures were also supported by a third crypto analyst who wished to remain unnamed.

He added that by keeping costs low, the exchange has been able to “accumulate large corporate reserves,” adding that “the vast majority of our revenue is made on transaction fees.” According to Hillmann, Binance’s “capital structure is debt free” and the company keeps the revenue from fees apart from the assets it acquires and holds for users.

Users can borrow money from Binance and deposit cryptocurrency as collateral, increasing the value of their derivatives trades by up to 125 times. This could result in enormous gains or enormous losses for the user. According to Hillmann, Binance backs all user deposits for derivatives and spot trading at a ratio of one to one with its own reserves, ensuring that deposits are safe and simple to withdraw. He claimed that Binance has stringent liquidation procedures that require it to sell off users’ positions when losses exceed the value of their collateral. According to him, Binance has “very-well capitalized” insurance funds to make up the shortfall if user positions turn negative “due to extreme market volatility.”

When asked how much the exchange had lost this year, Hillmann responded that

One of the least risk-averse programs in the industry is managed by Binance’s risk department. This safeguards both our platform and users.

Zhao, a Canadian citizen who was born and raised in China, has a strict culture of secrecy that he has upheld throughout the growth of his company. Zhao is guarding Binance’s financial information. The report was one in a series the news organization published this year on Binance’s financial compliance and interactions with international regulators.

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According to two people who worked with him, even Binance’s former CFO, Wei Zhou, did not have access to all of the company’s accounts during his three-year tenure. After being asked for comment, Zhou, who left last year, did not provide one.

Complete transparency

Zhao and other executives have consistently refrained from disclosing who controls the main exchange in public. However, Chief Compliance Officer Samuel Lim stated that it is owned and run by a Cayman Islands company, Binance Holdings Limited, in a private court submission submitted in 2020 in an arbitration case in the Cayman Islands.

Binance has received licenses or approvals from government bodies in a number of countries this year, including France, Spain, Italy, and Dubai. These developments were praised by Zhao, who declared in May that Binance’s registration as a crypto service provider in Italy would enable it to operate “in full transparency.” However, the Reuters analysis revealed that none of the units registered with local regulators offer a clear window into the primary Binance exchange.

Reuters enquired about the oversight of Binance’s local units in each of the 14 jurisdictions. Six of the eight who responded—in Spain, New Zealand, Australia, Canada, France, and Lithuania—said that their role did not involve overseeing the primary exchange and that the units were only required to comply with local reporting requirements for suspicious transactions.

Regarding their connection to the main Binance exchange, Reuters also questioned representatives of the regional Binance units and affiliates. Only one company, FiveWest from South Africa, responded. For facilitating crypto derivatives trading for Binance’s South African users, FiveWest, based in Cape Town, is paid a “minimal yearly license fee,” according to its managing director, Pierre van Helden.

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Van Helden said, “How Binance operates globally is unclear to us. Zhao’s business, he continued, was “cooperative” regarding compliance, and FiveWest regularly meets to make sure standards are met.

Only the unit’s capital base and ownership by a different Binance company in Ireland are disclosed in Binance’s publicly available corporate filings in Italy. The listed address for the Italian business Binance Italy S.R.L. is a collection of commercial and residential buildings in the southern city of Lecce.

Only two of the Binance units that were examined provide more comprehensive information in their filings. The most thorough picture is provided by one, a Lithuanian company called Bifinity UAB. In one regulatory filing, Bifinity identified itself as the “official fiat-to-crypto payments provider for Binance.” Dollars, euros, and other conventional currencies are considered fiat.

Furthermore, Bifinity stated that Binance and its subsidiaries are its “main strategic business partners.” Bifinity stated that its assets totaled 816 million euros and that it had a net profit of 137 million euros ($145 million) in its 2021 annual report. Bifinity stated that it had paid a single related party 421 million euros, along with approximately 185 million euros in “related expenses,” but did not say whether this related party is Binance.

Bifinity does not have a website or make its contact information available to the public, despite having 147 employees, according to its annual report. Saulius Galatiltis, the company’s chief executive, did not respond to requests for comment. Bifinity is not listed on the tenants’ board at its registered address in Vilnius, the capital of Lithuania, which is a business center.

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The other Binance location that provides more information than the bare minimum is in Spain. It registered with the Spanish central bank in July and reported meager revenue of about 1.5 million euros and a profit of just 9,000 euros for the previous fiscal year. No one from the division, Binance Spain SL, could be reached for comment. A reporter went to the company’s registered office, which was a coworking facility in Madrid. Without providing contact information, the receptionist mentioned that a small team from Binance Spain had moved a month earlier.

In the Gulf, Abu Dhabi, Bahrain, and Dubai have granted Binance licenses or permissions this year. Zhao stated to Bloomberg in March that Dubai will be his base of operations for the “foreseeable future.” No information about its financial activity or connections to the main Binance platform is provided in filings by Binance’s Dubai-based entities.

Such information was unclear, even to some company employees. A person with direct knowledge of the application claims that Binance hid its global profit numbers when it applied for a license in Dubai. The majority of customers in the United Arab Emirates signed up for Binance’s primary exchange, and the licensed Dubai company was not seeing significant trading revenues until at least late summer, according to the source.

Proof of Reserves

Numerous cryptocurrency exchanges, such as Binance’s rivals Huobi and OKX, as well as the Bahamas-based FTX, run from offshore locations like the Seychelles. Standards for financial reporting and corporate transparency are typically laxer in these countries than in the US.

The largest U.S. exchange, Coinbase (COIN.O), will list on Wall Street in 2021. It is required to submit audited quarterly earnings statements and annual financial reports, just like other public companies. Coinbase included information on revenue, profit, cash holdings, and trading volumes in its most recent earnings statement.

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The distinction between disclosures by a listed company and other offshore exchanges, according to Mark Palmer, head of digital assets research at U.S. financial services firm BTIG, “is really night and day.”

While we are a private company and have no public investors to whom we are obedient, Coinbase is a publicly traded company and is required to share that information with investors. There is currently no need for Binance to go public because the main justification for doing so is to raise capital.

Elliott Suthers, a spokesman for Coinbase, stated that Deloitte, one of the “Big Four” accounting firms, reviews the company’s financials on a quarterly basis “so customers don’t have to rely on our word.” Suthers stated, “We think exchanges have a duty to disclose their financials to their customers. We urge other exchanges to adopt the same strategy.

Some privately held exchanges, like FTX before its collapse, release financial information during fundraising. However, according to information from business information provider Crunchbase, Binance has not received funding from outside investors since 2018. We owe no one any money because we have no venture capital investments, Zhao stated to CNBC on December 15.

Sam Bankman-Fried, the founder of FTX, was accused last week by US prosecutors of defrauding equity investors and clients out of billions of dollars. It has come to light that funds were being secretly transferred from FTX to Bankman-hedge Fried’s fund, Alameda Research, which served as a market maker, a dealer who increases liquidity by purchasing and selling the same assets.

It’s uncertain if Binance or Zhao also own any market-making companies that use its platform. The separate American exchange Binance.US was served with a subpoena by the SEC in December 2020, requesting it turn over data on all of its market makers, their owners, and their trading activity.

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As part of a “commitment to transparency,” Binance last month shared a “snapshot” of its holdings of six significant tokens on its website and pledged to share the full set of information at an unspecified later time.

According to data company Nansen, after withdrawals and price swings, the holdings, which were valued at about $70 billion at the time of the snapshot on November 10 fell to $54.7 billion by December 17. Nearly half of its holdings were made up of two “stablecoins” that are pegged to the dollar: market leader Tether and Binance’s BUSD. According to the Nansen data, BNB, Binance’s proprietary token that it has created, represented about 9% of the assets.

According to market data, BNB is the fifth-largest crypto coin currently in use, with a market cap of about $40 billion. The trading fees charged by Binance are discounted for token owners. Zhao has stated that BNB is not used as collateral by Binance. Alameda secured loans from FTX and other lenders using the company’s internal FTT token as collateral.

Zhao claimed that audits of cryptocurrency exchanges were not a surefire way to stop bankruptcies after FTX’s demise. He told a TechCrunch interviewer,

“More audits are really good, but I’m not sure if they would prevent this particular case.”

In April, Zhao stated at a conference that Binance has been “fully audited.” Zhao responded that Binance’s financial results and balance sheet were being audited by independent

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“multiple auditors in different locations… Not all of the list is in my head right now.”

He now supports “proof-of-reserves” checks on exchanges’ crypto holdings. Users should be able to verify through the system that their holdings are included in blockchain data checks and that the exchange’s reserves correspond to their assets.

In order to examine its bitcoin holdings, Binance hired the accounting firm Mazars. The holdings were examined as of the end of one day in November by the company. In a report released on December 7, Mazars discovered that Binance had more bitcoin assets than liabilities due to its users. The check, referred to as a “agreed-upon procedures engagement,” was described as “not an assurance engagement” where the auditors personally certify their attestations of accounts. However, Zhao tweeted, “verified evidence of reserves. Transparency.”

Later, Mazars removed the report’s webpage from its website. Josh Voulters, its director of communications, claimed on Friday that

It has suspended its proof-of-reserves audits of cryptocurrency companies because it is worried about how the general public will interpret these reports.

Even though this checking system provides some insight into an exchange’s reserves, a full audit is still necessary, seven analysts, attorneys, and accounting experts said.

The system is unprotected because it only provides a small snapshot of an exchange’s cryptocurrency, according to two attorneys. Others claimed that it could not provide the same level of financial information about the company as a traditional audit.

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Todaro, the analyst at Needham & Company, claimed that there was “really no color” in Binance’s balance sheet.

 

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BNT/USD is trading near the $0.50 resistance

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The Bancor price prediction shows that BNT is crossing the 9-day and 21-day moving averages while the coin is taking off to the upside.

Bancor Prediction Statistics Data:

  • Bancor price now – $0.34
  • Bancor’s market capitalization is $55.8 million
  • The circulating supply of Bancor – 162.5 million
  • The total supply of Bancor – 162.5 million
  • Bancor Coinmarketcap Ranking – #287

BNT/USD market

Key levels:

Resistance levels: $300, $310, $320

Support levels: $130, $120, $110

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BNTUSD – daily chart

BNT / USD It is currently trading at $0.345 after touching a daily high of $0.490, and is likely to return above the 9-day and 21-day moving averages. However, in case the buyers can push the price above the $0.50 resistance level, then the daily candlestick may close above this level, and the price may rise towards the upper boundary of the channel.

Bancor Price Prediction: Bancor is preparing for an upward movement

According to the daily chart, the Bancor price It is moving near the $0.40 resistance level as the coin is preparing for additional gains. The technical indicator’s RSI (14) is also moving to cross above the 50 level, where the signal line is pointing up to signal a buy signal.

However, if buyers are able to push the price and hold it above the 9-day and 21-day moving averages, Bancor price could rise towards the upper boundary of the channel to reach the potential resistance levels at $0.50, $0.55, and $0.60. While crossing below the lower border of the channel, it could lift the currency to the support levels at $0.25, $0.20, and $0.15, respectively.

Against Bitcoin, Bancor is following a bullish rally, and it could swing higher to cross above the upper boundary of the channel that could identify the resistance at 2400 SAT and above. On the other hand, if the market price crosses the lower boundary of the channel, it may reach the support level of 1800 SAT and below.

BNTBTC – Daily Chart

However, the technical indicator’s RSI (14) is currently moving to cross above the 50 level as the signal line is pointing north to confirm the upward move. Moreover, any further upward movement may create additional gains above the channel.

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DYDX/USD could rise above $1.20

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Since the coin starts the upward movement towards the upside, the dYdX price forecast is likely to move steadily inside the channel.

dYdX prediction stats data:

  • DYDX price now – $1.10
  • DYDX market capitalization – $72.7 million
  • Circulating supply of DYDX – 65.5 million
  • Total supply of DYDX – 1 billion
  • DYDX Coinmarketcap Rank – #198

DYDX/USD Market

Key levels:

Resistance levels: $2.00, $2.20, $2.40

Support levels: $0.50, $0.30, $0.10

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DYDXUSD – daily chart

DYDX/USD is likely to cross above the 9-day and 21-day moving averages as the currency begins its upward movement. in the past few days, dYdX price Struggles to cross over to the positive side. According to the daily chart, the RSI (14) technical indicator moved to cross above the 40 level, confirming the bullish movement of the currency.

dYdX Price Prediction: DYDX is ready for an uptrend

the dYdX price It is currently moving north. If the currency continues its upward movement, the bulls may cross above the 9-day and 21-day moving averages, which could reach the resistance levels at $2.00, $2.20, and $2.40. At the time of writing, DYDX/USD is showing a slight bullish movement on the daily chart.

Conversely, if the coin slips below the lower boundary of the channel, it may bring the coin back to the $0.50, $0.30, and $0.10 support levels, respectively. Meanwhile, long-term buyers should not be alarmed by the small impact down the road, as the future of DYDX is assured as evidenced by the technical indicator’s RSI (14).

Against Bitcoin, dYdX price is hovering below its 9-day and 21-day moving averages as the coin is poised for an upward move. The technical indicator’s RSI (14) also confirms the upward movement as the signal line encounters the 40 level. On the contrary, a potential downside move could emerge if the market price crosses below the lower boundary of the channel, which could reach the support level 200 SAT and below.

DYDXBTC – Daily Chart

Meanwhile, any further bullish move above the moving averages could push the coin to the 1200 SAT resistance level and above, and this could take the coin to a new high, and the market could remain in the bullish zone.

But, Dash 2 Trading It gives you the ability to improve your trading and scalping profits with effective crypto trading recommendations, automated trading, and analytics features. There is a D2T token pre-sale going on and time is running out. The launch of the pre-sale dashboard is coming soon as the product developer is ahead of schedule. To date, the prequel has raised nearly $12 million.

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SBF to Enter Plea Deal, Mango Exploiter Arrested, Celsius News: Hodler’s Digest, Dec. 25-31

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