Binance users withdrew over $1 billion from the exchange after CEO stepped down and admitted blame

emanates from Binance More than $1 billion worth of cash flowed into Bitcoin in the past 24 hours after founder and CEO Changpeng Zhao stepped down and pleaded guilty Tuesday in a deal with the Justice Department, according to data from blockchain analysis firm Nansen. Not included.

Meanwhile, liquidity has fallen 25% in the same time frame as market makers withdrew their positions, according to data provider Kaiko.

The outflow is significant and comes close to an earlier incident when the exchange and its founder were charged with 13 securities violations by the SEC.

The exchange’s native token, BNB, has fallen more than 8% in the last 24 hours. According to Nansen, Binance holds approximately $2.8 billion worth of BNB tokens. And in March, when Binance phased out zero-fee trading of crypto asset pairs, including Bitcoin, a major incentive for customers, the exchange began to see its share of all spot trading decline.

Binance remains the world’s largest crypto exchange globally, processing billions of dollars of trading volume every year.

Binance agreed to pay a fine of $4.3 billion to the US government. The plea deal ends a years-long investigation into the crypto exchange.

According to Nansen, more than $65 billion of assets remain on the platform, meaning Binance likely has enough capital to withstand a sudden rush of investors away from the platform. And while withdrawals are increasing, there has not yet been a “mass exodus” of funds from the exchange.

“After the momentary shock of agreement with the announcement, there has been no significant impact on most assets,” said Grzegorz Drozdz, market analyst at investment firm Conotoxia Ltd.

“It seems that the cryptocurrency that suffered the most, losing more than 9%, is Binance’s BNB token. Of the top 100 cryptocurrencies, 98 have seen noticeable rebounds in the last 24 hours. “Meanwhile, Bitcoin fell 4% before rebounding and remaining with a loss of 1.3%,” he said.

Drozdz said it could be a net positive for the industry now that the dispute with regulators is behind Binance and the company has promised to step up security measures.

“This, combined with the potentially imminent approval of an ETF based on Bitcoin quotes, could have a positive impact on the crypto market in the long term,” Drozdz said.

That’s the billion-dollar question facing the cryptocurrency giant after Zhao agreed to a plea deal and stepped down from the company.

Started by a Chinese-born entrepreneur in 2017, Binance went from a relatively obscure name to a major force in crypto in just a few weeks.

Experts CNBC spoke to said that despite the turbulent situation, Binance is likely to recover from the ordeal. He cited the company’s decision to comply with the DOJ process and implement a three-year strategy to bring its operations into compliance and the amount of assets held within the company’s reserves.

Milton R. Professor of Law at Vanderbilt University. “The $4 billion amount is clearly very large and will cause real pain to Binance’s balance sheet,” Underwood Professor and Associate Dean Yasha Yadav told CNBC via email.

“However, this fine does not appear to be aimed at dealing a fatal blow to the exchange. Binance’s dominant position within the crypto-ecosystem over many years, CZ’s individual wealth … and continued trading volume despite a decline in overall crypto trading.” Based on volume as well as Binance’s market share relative to other venues, I suspect that Binance will face a risk to its solvency in paying this fine.”

Zhao and others were charged with violating the Bank Secrecy Act by failing to implement an effective anti-money laundering program and knowingly violating U.S. economic sanctions in a deliberate and calculated effort to profit from the U.S. market without implementing controls required by U.S. law. Was accused of violating. ,” according to the Justice Department.

Binance has agreed to forfeit $2.5 billion to the government and pay a $1.8 billion fine, for a total of $4.3 billion.

US Attorney General Merrick Garland said at a news conference on Tuesday that it was “one of the largest penalties we have ever received.”

“Using new technology to break the law doesn’t make you disruptive. It makes you a criminal,” Garland said. “Binance prioritized its profits over the safety of the American people.”

Zhao said in a post on X (formerly Twitter) on Tuesday that he “made mistakes” and “must take responsibility.”

Abu Dhabi’s former financial services regulator Richard Teng was named as Zhao’s replacement. Teng was most recently global head of regional markets at Binance.

He was also previously the Director of Corporate Finance at the Monetary Authority of Singapore.

The action against Binance and its founder was a joint effort by the Department of Justice, the Commodity Futures Trading Commission, and the Treasury Department.

The Securities and Exchange Commission was notably absent.

Treasury Secretary Janet Yellen said in a release Tuesday that the exchange allowed illicit actors to conduct more than 100,000 transactions that supported activities such as terrorism and illegal narcotics and that it allowed more than 1.5 million virtual currency trades that Used to violate American sanctions.

It also allowed transactions linked to terrorist groups such as Hamas’ al-Qassam Brigades, Palestinian Islamic Jihad, al-Qaeda and ISIS, Yellen said in the release, adding that Binance “has never had a single suspicious activity report filed.” ”

Zhao has been released on a $175 million personal recognizance bond with $15 million in cash and a sentencing hearing is scheduled for Feb. 23.

Binance will continue to operate but with new ground rules. The company is required to maintain and enhance its compliance program to ensure that its business is in line with US anti-money-laundering standards. The company is required to appoint an independent compliance monitor.

The case against Binance, which was opened on Tuesday, shows three criminal charges were filed against the exchange, including conducting money-transmission business without a license, violating the International Emergency Economic Powers Act, and conspiracy.

Especially as some of its rivals may try to take advantage of the situation. coinbaseKraken, and OKEx.

Coinbase and Kraken are currently fighting their own legal battles with the SEC. In June, the agency sued Coinbase, similar to the lawsuit it brought against Binance, alleging it operated as an unauthorized securities exchange, broker and clearing agency. And on Monday the SEC sued Kraken, alleging that the exchange commingled $33 billion in customer crypto assets with its company assets, potentially creating a significant risk of loss to its users.

Vanderbilt’s Yadav said Binance’s stock is likely to come under scrutiny as investors assess where to move after the company’s CEO exit. He said efforts by Binance to create strategic transparency since the collapse of FTX have failed.

Binance published its proof of reserves, which is a system for showing the number of its assets and liabilities. But this proof is based on the limited information that can be revealed from a public blockchain, and is not equivalent to a full-scale audit.

“There is no doubt that Binance’s reserves will come under scrutiny in the coming months and years,” Yadav said. “A big question that faces Binance is how it is run, what is the state of its internal governance and risk management.”

“This is a space that has long been known for its opacity, as well as an impenetrable capital and organizational structure, the complexity of which has forced regulators like the CFTC to scrutinize these organizational interconnections, which Binance There are potential avenues for getting involved in activities that violate applicable rules,” Yadav said.