‘Devastating Investor Carnage’—Ex-SEC Official Issues ‘Inevitable’ Crypto Bank Run Prediction After Huge Bitcoin and Ethereum Price Crash
BitcoinBTC, ethereum and other major cryptocurrencies are still feeling the effects of the shock FTX implosion last year – with a formerly high-flying bank now teetering on the brink of collapse.
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Bitcoin prices staged something of a recovery in the first two months of the year, but have seen the rally stall, weighing on the price of ethereum and other cryptocurrencies and triggering “bull trap” warnings.
Now the former head of internet enforcement at the US Securities and Exchange Commission (SEC) has predicted FTX rival Binance, the world’s largest crypto exchange, could see a run on deposits – potentially causing “devastating investor carnage”.
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“Binance is a shadow bank that mints its own fake currency while providing limit order books/brokerage/custodian/clearing/settlement/etc. without US regulatory oversight or audit,” John Reed Stark, a former attorney for the SEC, posted to Twitter. “It’s FTX redux and an epic bank run seems inevitable.”
Binance has faced intense scrutiny in the months since FTX’s implosion, with questions about whether it is able to cover user withdrawals. In November, FTX collapsed under the weight of $8 billion in customer withdrawals — a situation similar to a run on a bank that led to it declaring bankruptcy.
“Once withdrawals are suspended and a collapse begins, not only will Binance’s customers be cut off, but customers will also likely become unsecured creditors,” Stark added, pointing to how users have been treated in the bankruptcy proceedings for collapsed crypto companies FTX, CelsiusCEL, Blockfi and Voyager.
ONE Forbes investigation last month identified an apparent $1.8 billion hole in Binance’s finances. The company’s CEO Changpeng “CZ” Zhao denied the allegations, claim they “intentionally misrepresent the facts.”
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Last week, US lawmakers led by influential Democrat Senator Elizabeth Warren demanded Binance address the “eerily similar” situation to FTX regarding its US subsidiary.
“Your companies’ apparent attempts to evade enforcement of anti-money laundering laws, securities laws, information reporting requirements and other financial regulations cast serious doubt on the stability and legitimacy of Binance and its related entities and your commitment to your customers, Warren and two others senators wrote in a letter addressed to the CEOs of Binance and Binance.US.
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