Binance Withdrawals Surge to $3 Billion in 24 Hours as Crypto Industry Trembles Amid FTX Fallout

Zhao Changpeng, founder and CEO of Binance, attends the Viva Technology conference dedicated to innovation and startups at Porte de Versailles exhibition center in Paris, on June 16, 2022. Benoit Tessier/Reuters

Billions of dollars have flowed out of Binance, one of the leading cryptocurrency exchanges in the world, as the industry struggles with the high-profile fallout of FTX.

Binance’s 24-hour net outflow hit $3 billion, according to a Dec. 13 tweet by blockchain data firm Nansen. The exchange reported more than $62.5 billion in disclosed holdings. During the past seven days, Binance has seen $8.78 billion in outflows and $5.12 billion inflows, bringing the total net outflow during the period to $3.66 billion.

“We saw some withdrawals today (net $1.14b-ish). We have seen this before. Some days we have net withdrawals; some days we have net deposits. Business as usual for us. I actually think it is a good idea to ‘stress test withdrawals’ on each CEX on a rotating basis,” Binance CEO Changpeng Zhao said in a tweet on Dec. 13.

Though these “stress test withdrawals” cost some network fees, they do have a positive effect in the sense that such testing “keeps the industry healthy,” he added.

FTX, which used to be a major crypto exchange, filed for bankruptcy in November after concerns about the company’s balance sheet ended up triggering a mass withdrawal of funds. This pushed the firm into a liquidity crisis, leaving it to file for bankruptcy. Over a million creditors are estimated to be affected by the incident.

The collapse of FTX has shaken cryptocurrency markets, even affecting prices of the top digital currency, Bitcoin. At the beginning of the fourth quarter, Bitcoin was trading close to $20,000. As of Dec. 14, it was trading at around $17,800, down more than 11 percent.

Clients are now not focusing on expanding their crypto portfolios, said Aya Kantorovich, former head of institutional coverage at FalconX, according to Bloomberg.

Instead, clients have hedged and unwound their crypto exposures, thereby pushing down open interest in major coins like Bitcoin and Ethereum. Kantorovich only expects funds to redeploy their money into the sector in January.

Falling Interest, Binance’s Asset Proof

A recent research report by Citi states that the digital asset market has been characterized by a series of negative shocks in the past year. Institutional interest has fallen, it noted.

The failure of many centralized entities and the “loss of trust” is reflected in exchange-traded product flows that have remained negative during this period, the report said, according to CoinDesk. Compared to an 18 percent drop in the S&P 500 Index, the crypto market cap has fallen by 61 percent.

“Leverage, volatility, and interest have faded as investors battle with declining prices,” analysts wrote in the report. “Retail interest has broadly diminished as prices have declined [and this has] coincided with a more general decline in volatility.”

Binance had recently released a “proof of reserve” report detailing its assets and liabilities in a bid to assure investors about the safety of their deposits. The company claims that Binance has funds that cover all user assets in a 1:1 ratio.

However, the report showed that Binance had a “customer liability report balance” of 597,602 Bitcoins while it only had an “asset balance report” of 582,485 bitcoins, meaning that Binance is not strictly meeting its claim of maintaining a 1:1 ratio of reserves to customer asset, according to an analysis by The Wall Street Journal.

Speaking to the outlet, Hal Schroeder, a former Financial Accounting Standards Board member and investment manager who teaches accounting at Rutgers University, said that the report means little since information about Binance’s internal controls is not available.

“We don’t know how good Binance’s systems are to liquidate assets to cover any margin loans,” he said. “And we know in the United States, even with all the good systems, banks have occasionally been caught off-guard. In light of what we’ve seen in the Bahamas [FTX collapse], I don’t want to conclude that all the systems are that good.”