Binance's red flag

Anyone else have déjà-vu…?

Author

Angelina Berger
January 31, 2023

Welcome back. Did you catch SEC Commissioner Hester Peirce’s speech on crypto last week? Completely caught me off guard—in a good way: “Crypto’s value proposition depends primarily on the builders of this technology, not on regulators like me, who lack technical expertise and stand on the periphery looking in.”

Today: Binance’s major mishap, a look into BTC’s price rally, and China’s new NFT game. Buckle up and let’s go.

—Angelina

The Customer Fund Déjà-vu

In romance as in business, having your stuff together is an important quality. Binance seems to be lacking that quality in both its business and its customer relationships…and that’s causing some major trust issues.

What happened: Last week, news broke that Binance was keeping collateral backing its native B-Tokens in the same wallet as customer funds, a mistake which could have caused problems for customers withdrawing their money from the exchange.

  • B-Tokens represent crypto assets like BTC and ETH on the Binance Smart Chain. These tokens are supposed to be collateralized on a 1:1 basis, the reserves for which are kept in a cold wallet.

  • But that wallet—the holdings of which were posted on the Binance website— contained significantly more tokens than needed to collateralize the B-Tokens, suggesting that customer funds were added into the mix.

  • Binance later confirmed this mistake to Bloomberg, adding that it’s “in the process of transferring these assets to dedicated collateral wallets.”

Confidence crisis: Binance is already under heavy scrutiny for releasing a disappointing proof-of-reserves report and for mismanagement issues involving its stablecoin, BUSD. The declining demand for BUSD, which has fallen behind its stablecoin rivals in what is shaping up to be a fierce competition, suggests Binance is losing crypto’s trust.

I know the words “commingling of customer funds” can bring back some dark memories. But it’s still too early to draw the FTX comparison here.

  • If this really was just a one-time mishap as Binance claims, there’s no reason to be overly worried.

  • It’s when errors like these are systematic that Binance—and crypto as a whole—could have a problem.

The silver lining? Blockchain transparency allows issues like these to be uncovered in the first place. As crypto literacy rises, more people can hold industry giants like Binance accountable.

What's This Rally About?

Bitcoin is about to close out its best January since 2013. The price of BTC jumped 39% this month, and Goldman Sachs even ranked Bitcoin as the best performing asset in 2023 so far.

Factors (potentially) driving the rally:

  • Institutional investors. Whales from the U.S. are on a BTC shopping spree, according to CoinDesk.

  • Short squeeze dynamics. Traders who bet hard against Bitcoin in December likely accelerated BTC’s price surge as they were forced to buy back their short positions.

  • Macro trends. With inflation cooling and the Fed slowing its interest rate hikes, investors could be regaining their confidence in riskier assets.

Outlook: Without a crystal ball, it’s impossible to know where Bitcoin will head next. But here are two possible scenarios.

  1. The bullish outlook. The Fed pulls off a “soft landing” (getting inflation under control while avoiding a recession) and the upcoming Bitcoin halving gets investors excited about BTC’s future.

  2. The bearish outlook. Monetary policy continues to tighten, the economy spirals into recession, or another black swan event hits crypto (*cough* Grayscale).

China Cozies Up to NFTs

How often do you get to say that a Katy Perry hit accurately describes China’s convoluted relationship with web3?

China’s hot and cold approach? Hot again. Little Red Book (China’s version of Instagram) integrated with the layer 1 blockchain Conflux last week. This allows the app’s 200 million users to mint and display NFTs directly on the popular social platform.

A new pro-NFT stance? Following China’s sweeping ban on crypto services in 2021, the country is showing a renewed interest in NFTs. Just a few weeks ago, the Chinese state-sanctioned NFT trading platform CDEX launched—suggesting we’ll hear more from the Chinese NFT front in future.

In other news:

  • Ethereum’s anticipated Shanghai upgrade is scheduled to launch in March after devs successfully deployed the Shanghai mainnet shadow fork.

  • NFTs have a major use case in the indie film industry, as this success story proves.

  • New court filings revealed how far FTX’s debt spread into the non-crypto space.

  • The White House called on Congress to step up its crypto regulation.

  • WazirX, India’s largest crypto exchange, escalated its ownership dispute with Binance.

Crypto Job Board

  • DeFi expert? Almanak Blockchain Labs is hiring a Data Scientist to research all things DeFi.

  • Aurora is looking for a Legal Counsel to guide it through the U.S. legal landscape.

  • If you think Scrum Master is a cool job title, help EtherMail build their web3 email solution.

And that’s what you need on your radar this week in crypto. Will BTC hit the $30k mark any time soon? Shoot me a reply with your thoughts. See you back here next week!