FTX may not have been the only crypto firm to use customer funds

Good Friday night, opening bell crew. Senior reporter Phil Rosen here.

As if the universe knew I hadn’t written a crypto newsletter in a while, here we go: Binance, the world’s largest crypto exchange, has been under scrutiny this week.

And the reasoning reminds me of what happened in the run-up to the collapse of Sam Bankman-Fried’s FTX, an event many consider the Lehman Brothers of crypto.

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1. With the first reaction to FTX largely in hindsight, crypto chatter in 2023 has largely centered on the volatility seen across various tokens.

Bitcoin, the world’s most popular token, surged roughly 40% in January, although it posted a mighty 1% gain in February. Ether, meanwhile, climbed 31% in January but also had a subdued month afterward.

Still, events involving digital assets have become exciting again after Forbes reported this week that Binance used customer funds for its own purposes, similar to what FTX did.

The world’s largest crypto exchange allegedly transferred nearly $1.8 billion in stablecoin collateral to hedge funds, the report said. Forbes concluded that over $1 billion of customer assets were left exposed and were not supported one-to-one as the exchange had previously stated.

Here is what a spokesperson from the stock exchange told Insider:

“Binance does not, and never has, invested or otherwise distributed user resources without consent in accordance with the terms of the specific product. Binance holds all of its clients’ assets in segregated accounts that are identified separately from any accounts used to hold assets belonging to Binance.”

Any move by Binance to shuffle customer money around isn’t exactly illegal, but the risks are clear in the wake of the FTX disaster, part of which involved the exchange using customer money to make large bets via its affiliate trading arm.

Meanwhile, the Financial Times reported on Wednesday that Binance’s stablecoin, BUSD, suffered $6 billion in outflows in the month of February. It is the world’s third largest stablecoin and is meant to be pegged to the US dollar – but that one-to-one relationship is starting to show signs of crumbling.

During a Twitter Spaces conversation last month, CEO Changpeng Zhao downplayed the ties between the exchange and its branded token.

“BUSD is not issued by Binance,” he said. “We have an agreement to rent [Paxos] use our brand, but it’s not something we created.”

All this comes after a new report said Binance had secret access to a bank account belonging to its apparently independent US partner.

That account, Reuters reported, was used to send $400 million to a trading firm managed by Zhao.

How confident are you in the cryptocurrency market and digital asset sector? Tweet me (@philrosenn) or send me an email ([email protected]) to let me know.

In other news:

2. US stock futures fall early Thursday and government bonds are selling off, suggesting investors are preparing for a longer period of higher interest rates. Meanwhile, Tesla shares fall after Elon Musk falls short on details at the much-anticipated investor day. Here are the latest market movements.

3. Income on tires: Broadcom, Costco and Toronto-Dominion Bank all report.

4. The chief investment officer of a $540 billion company thinks the stock market could have already bottomed out for the year. Although many experts have been screaming “sell” in recent weeks, Wes Crill believes there is cause for optimism. Here is what he is most positive about for 2023 and beyond.

5. Russia’s ruble has crashed 20% as wartime costs pile up and energy revenues drop. The currency has been trading at about 75 rubles per dollar, its lowest mark in 10 months. In an effort to close its budget deficit, Moscow has sold its reserves of Chinese yuan.

6. Mortgage applications have just hit a 28-year low. Data from the Mortgage Bankers Association released on Wednesday showed that housing demand continues to be weighed down by higher interest rate expectations. Zillow and Redfin analysts told Insider they expect the U.S. housing slump to deepen as the year progresses.

7. Artificial intelligence is on the verge of an “iPhone moment”. Bank of America strategists see new technology adding trillions of dollars to the global economy. Given AI’s commercial potential and ability to democratize data, they predict it will “revolutionize everything.”

8. Navigating this year’s stock market is going to be difficult. But this CIO of a top wealth management firm shared six tips for investors who want to come out on top. Here’s what you want to know.

9. Five market-beating fund managers offered their views on how to take advantage of a comeback rally for foreign stocks. International stocks have outperformed over the past five months – and these are the smartest ways to profit from a long-term rally for once-forgotten names.

10. Novavax shares plunged after the covid-19 vaccine maker said it had “significant doubt” about its ability to continue in business. There is uncertainty about future earnings, and the biotechnology company saw losses in the fourth quarter twice as deep as expected. Get all the details.

Curated by Phil Rosen in New York. Feedback or tips? chirping @philrosenn or e-mail [email protected].

Edited by Max Adams (@maxradams) in New York and Hallam Bullock (@hallam_bullock) in London.