Binance was once FTX's rival and possible savior. Now it's trying not to be its sequel

By David Gura

Published December 16, 2022 at 11:00 AM EST

On Monday, FTX founder Sam Bankman-Fried was arrested by police in the Bahamas at the request of the U.S. government.

Fallout from the catastrophic collapse of the cryptocurrency exchange FTX continues to spread, and fear and panic has now turned to FTX's one-time rival, Binance.

Approximately $1.14 billion was withdrawn from Binance on Tuesday, as the crypto world digested news that FTX's founder, Sam Bankman-Fried, had been arrested in the Bahamas, along with a report about government scrutiny of Binance.

The company's CEO, Changpeng Zhao, who is better known as "CZ," dismissed the outrush of cash as "business as usual" for the world's largest crypto exchange.

"We have seen this before," he wrote on Twitter. "Some days we have net withdrawals; some days we have net deposits."

The company offered reassurances in a statement that the withdrawals were "managed with ease."

There were also signs, though, of uneasiness, when Binance halted withdrawals of a so-called "stable coin" called USDC, for about eight hours on Tuesday.

Binance CEO Changpeng Zhao, better known as CZ, says his company "will survive any crypto winter."

It reminded crypto investors of the run-up to FTX's implosion just a month earlier. FTX had to halt withdrawals when customers panicked over questions about its solvency. Ultimately, the company filed for bankruptcy, revealing it did indeed have money problems and, at least $8 billion of customers' money has disappeared.

According to CZ, Binance's situation on Tuesday wasn't comparable, and he blamed it on a bank being closed.

But in a memo to employees, obtained by NPR, CZ also indicated that Tuesday was not a one-off, with the industry where he also reigns as a celebrity and influencer going through an "historic moment."

"While we expect the next several months to be bumpy, we will get past this challenging period," he wrote. "And we'll be stronger for having been through it."

He told Binance employees that "this organization was built to last" and "will survive any crypto winter."

The cat's cradle of crypto

FTX's swift downfall, from being a $32 billion behemoth to bankruptcy, though, has many wondering what parts of the market will survive. Although investigators are still piecing together what happened, the collapse has laid bare how closely connected many of the biggest players in crypto are.

A little more than two weeks after FTX fell, crypto lender BlockFi filed for bankruptcy, after halting withdrawals and asking customers not to make deposits. It was one of a handful of companies that FTX had bailed out as the "crypto winter" began setting in a few months ago.

As the Federal Reserve has raised interest rates to fight high inflation, investors have lost their appetite for risk and for almost anything tech. The values of cryptocurrencies are falling, with Bitcoin's down more than 60% this year.

Another part of the crypto tangle is Genesis, which is facing the possibility of bankruptcy. It saidin a tweet last month its derivatives business had about $175 million locked in an FTX account.

One of its units was named on Thursday to a creditors committee in the FTX bankruptcy case by the Department of Justice's U.S. Trustee, giving it power in shaping how FTX will pay off its debts.

Binance, meanwhile, was at the center of FTX's implosion. In November, after a report raised questions about FTX's finances, and its cozy relationship with Alameda Research, the private hedge fund founded by Sam Bankman-Fried, CZ decided to dump his holdings of a cryptocurrency FTX minted, called FTT.

That led to what was essentially a bank run, and with FTX's future very much in doubt, Binance signed a non-binding letter of intent to acquire FTX.

Hours later, CZ reneged on that offer, all but ensuring FTX's dissolution.

Since then, Binance has gone to great pains to stress it is financially sound.

The company hired the accounting form Mazars to review its numbers, and it provided an assessment of its finances to customers, which it is characterizing as a "proof of reserves."

But Binance is being investigating by the Department of Justice, and Reuters recently reported prosecutors are "delaying the conclusion" of that investigation.

"As has been reportedly widely, regulators are doing a seeping review of every crypto company," a Binance spokesperson told NPR, in an e-mail. "This nascent industry has grown quickly and Binance has shown its commitment to security and compliance."