Changpeng Zhao Binance’s chief executive tried to rally the troops.
This week’s email from CZ, a Canadian-born boss, was sent to employees. He warned that the next months would be “bumpy”.
He said that “We will overcome this difficult period” and “we’ll be more powerful for having gone through it.”
Zhao, the co-founder and chief executive of the largest cryptocurrency exchange in the world, appeared to be the last man standing for crypto.
However, this position was put under pressure by customers who pulled $6bn (£4.9bn worth) of funds from the exchange last week.
After the collapse of FTX, there was a growing distrust in the crypto sector. These withdrawals were triggered. Sam Bankman-Fried (FTX’s founder) has been charged with fraud over allegedly misappropriating billions in customer money. He denied any wrongdoing.
Binance published a proof-of-reserves report last week in an effort to increase customer confidence. Based on an accounting firm Mazars’ snapshot review, the document indicated that Binance had enough crypto assets to reimburse customers in the event they were withdrawn.
However, Mazars had removed the audit from the internet by Friday. Binance stated that Mazars had stopped all cryptocurrency work.
Binance has been forced to stop withdrawals by other digital coin exchanges and lenders, but it looked as though Binance would be able to escape relatively unscathed.
The company employs around 7,500 people and has a total of $60bn (£49bn), in cryptocurrencies. This is becoming more suspicious. The US government is also investigating criminal charges against the company for money laundering violations.
Despite the uncertainty, Binance isn’t slowing down. Zhao plans to raise a multibillion-dollar fund to help struggling peers.
Binance’s chief strategist officer Patrick Hillmann stated that the fund was worth as much as $2.5bn, and had committed outside investors. Binance was not a “white horse” for the entire industry, he said. He said that Crypto is going to be fine.
Investors continue to withdraw funds from digital coins in large numbers. Bitcoin’s price is now at around £14,000.
Zhao is also taking aim at critics. He claimed that recent negative news stories might have been funded by Bankman-Fried last week. This was in a tweet interview.
He said that “they are still writing FUD” which is crypto-speak and means “fear, uncertainty, and doubt”. “They may have been paid in full.”
Binance, like FTX, operates offshore and is incorporated in the Cayman Islands. Although it was denied a UK cryptocurrency license, Binance has been building alliances across Whitehall and lobbying groups in its bid to relaunch Britain.
Insiders of Westminster who have subscribed to Politico’s Playbook newsletter were given adverts by Binance in a sponsored issue this week.
It appointed Lord Vaizey (the former digital minister) to a global advisory panel that was created to “weigh in on the most sensitive and complex regulatory and compliance issues facing cryptocurrency.” According to Lord Vaizey, the role would not involve him lobbying the FCA for regulation. He didn’t respond to requests for comment.
According to a brochure, Binance is an “Institutional member” of the lobby group CryptoUK. This membership costs up to £20,000. CryptoUK is responsible for running the All-Party Parliamentary Group Crypto and Digital Assets. This group was funded by the government to the tune of £46,000 in 2017.
Its efforts extend beyond the UK. Binance’s American division launched the “Political Action Committee” in the US. These groups are used to make donations or fund legislation.
Transparency disclosures by the EU show that it has increased lobbying efforts. It spent over half a million euros to win Brussels last year in advance of the EU’s new law to regulate digital currencies.
Hawthorn, a PR firm that represented Chinese tech giant Huawei in its fight against a UK 5G ban, is one of Binance’s UK advisers. It has made large investments in Britain to hire legal and regulatory specialists. It hired Steven McWhirter in April.
Hillmann of Binance insists that the company does not intend to spend “expensively” on political giving. The disgraced boss at FTX, Bankman-Fried is well-known for having donated more than $40m to US Democrats to win them over.
Despite efforts to address concerns, Binance has come under sharp criticism from UK regulators. Three warnings were issued by the FCA about its activities. It stopped Binance’s launch of a UK division in June 2021.
According to the FCA, the company refused to reveal who was behind Binance.com. In February, the regulator issued additional warnings about a Binance deal with a UK payments company and in March about a possible acquisition.
The company, which was blocked by the UK regulators, has now reapplied to be granted a UK license. According to the company, it told MPs that it has been in discussions with regulators for over a year.
Some MPs are questioning Binance’s involvement in the collapse of FTX. Zhao stated that he intended to sell 500 million tokens created by FTX days before the collapse. Its value plummeted. He also pulled out of plans for FTX’s takeover.
Harriett Baldwin (MP on the Treasury Committee) stated: “It must’ve been obvious when that decision was made that it was likely that it would cause the collapse of FTX.” Binance denied this.
FTX’s collapse has exposed a web of fraudulent activity including the misuse of customer deposits. Bankman-Fried however, denies any wrongdoing.
However, authorities will be more cautious about allowing access to another offshore exchange to UK consumers after the death of its largest rival.
“This sets the industry back a few years,” Daniel Trinder (London-based head for public policy), admitted to MPs last month.
Alexander Carter-Silk is a Keystone Law lawyer. He says that cryptocurrency exchanges now face a great challenge to ease regulators’ concerns as market confidence has drastically decreased.
Binance has not been forthcoming in many cases regarding their management and who is in control. Regulators are concerned about this. Binance claims that the company is in the midst of restructuring and to simplify its operations.
Hillmann claims that the UK could fall behind in cryptocurrency regulation if it takes too long to regulate digital currencies. He says that allowing crypto to spread in Europe would be a historical mistake.
Binance is facing possible criminal charges in the USA. Hillmann states that the company cannot prejudge the outcome of investigations but says: “Regulators have broad spectrums of investigations into this industry in the US. Because we are the largest company, it is likely that we will be involved in some investigations.
Zhao did not respond to a question about whether he was planning on visiting the US anytime soon. He said that he was busy, but that he wasn’t against travelling to the US.
Nansen’s cryptocurrency analyst Andrew Thurman said that this has “caused jitters for both institutional and retail users”.
Zhao downplayed the exodus and insisted that the company’s deposits were backed one-to-1, unlike FTX, which wasted customer funds on high-risk investments.
John Ray was the man responsible for restructuring the failed exchange. He described the failure of FTX as “old-fashioned embezzlement”. Before FTX’s demise, executives spent extravagantly on penthouses or boats.
Zhao now wants to present Binance as the mature face in crypto.
Hillmann states that Binance is a different kind of business. Binance does not have yachts.
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