How could the closure of Binance.US affect the cryptocurrency market? Analysis of the solvency of the Binance exchange

19.06.2023 11:13|Analyst Team, Conotoxia Ltd.

The Securities and Exchange Commission (SEC) has filed a lawsuit against Binance and its founder. Despite this, it appears that the exchange reached an agreement with the regulator after certain conditions were met. These events may have prompted customers to withdraw funds from the exchange en masse. Let's analyse the data and see if similar threats to the operations of Binance.US could jeopardise the business of the exchange as a whole, and how might this affect the cryptocurrency market?

Why is Binance so important to the cryptocurrency market as a whole?

Binance is the largest cryptocurrency exchange in the world. It has 56% of all assets in this market. According to Cryptoquant, their current value is $45.1 billion, with $2.2 billion (4.9%) deposited with Binance.US.

The problems affecting the exchange have a direct impact on the capitalisation of the entire digital currency market. An argument is often made about the lack of transparency of the exchange's financial data. However, it is worth noting that Binance introduced a proof-of-reserves system at the end of last year. It allows for easier tracking of assets held on the exchange. The question of whether the current outflows really pose a real threat to the exchange seems to be an important one.

Just Binance.US, has reached an agreement with the Securities and Exchange Commission (SEC), which means that the exchange's funds will not be frozen and the platform will be able to continue its operations. The judge presiding over the case ruled that meeting the SEC's demands would have led to the collapse of the exchange and a crisis in the cryptocurrency market. As a result, the two sides reached an agreement that includes restricting access to Binance.US customer funds to employees of the exchange only. Individuals associated with the main branch of Binance.com will not be allowed to manage Binance.US's private wallet keys. In addition, Binance.US will be required to report its corporate expenses and costs going forward.

How much capital has flowed out of Binance? Let's look at the bigger picture

78% of funds on Binance were deposited in bitcoin, ethereum or stablecoin. Since the beginning of the month, it has lost: 42.2k bitcoin, 368k ethereum, and after a $1.2bn drop in stablecoin in one day, the decline has reset to zero. Let's look at this data from a broader perspective. Is it really as bad as some are portraying?

Source: Cryptoquant

Analysing bitcoin's historical reserves, it can be seen that they have hardly deviated from the long-term upward trend. There are currently 566,000 bitcoin on the platform, and the current sell-off has resulted in a 7.4% reduction.

Source: Cryptoquant

A similar situation also applies to ethereum, of which there are currently 4.1 million on the exchange. The current panic has caused them to fall by 8.5%.

Source: Cryptoquant

The number of stablecoins has hardly changed, but the long-term capital outflows from the crypto market can be seen quite well from them. Since the beginning of the year, the volume of the 20 most popular stablecoins has declined by as much as 61% to its current level of US$8.3 billion.


Source: Cryptoquant

What could be the implications of Binance's withdrawal from the United States?

As we mentioned earlier, Binance.US accounts for 4.9% of Binance's total capital. For this reason, it does not appear that the closure of Binance.US will affect the liquidity of Binance itself. It could have a negative impact, especially on cryptocurrencies linked to this exchange, such as BNB and stablecoin BUSD, which are currently being targeted by the SEC. The former in particular is experiencing a decline of more than 20% since the lawsuit was filed.

Source: Conotoxia MT5, BNBUSD, Daily

 

Grzegorz Dróżdż, CAI, Market Analyst of Conotoxia Ltd. (Conotoxia investment service)

Materials, analysis and opinions contained, referenced or provided herein are intended solely for informational and educational purposes. Personal opinion of the author does not represent and should not be constructed as a statement or an investment advice made by Conotoxia Ltd. All indiscriminate reliance on illustrative or informational materials may lead to losses. Past performance is not a reliable indicator of future results.

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76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76.23% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Trading on CFDs is provided by Conotoxia Ltd. (CySEC no.336/17), which has the right to use the Conotoxia trademark.