The collapse of FTX brought a lot of caution around centralised exchanges. The collapse perhaps underlined the idea that no exchange was too big to fail. FTX was the second-largest exchange, valued at least $30 billion by early November. Two weeks later, FTX was under the bridge. Investors now feel exchanges need further scrutiny, especially regarding their proof of reserves.
Binance Coin (BNB/USD) was among the exchanges to emphasise the idea of proof of reserves. However, an audit report by Mazars shows there are questions about Binance’s report on its reserves. The auditor says the report lacks information showing the quality of Binance’s internal controls. That includes the system for liquidating assets to protect margin loans.
Mazars says there are discrepancies in total Bitcoin liabilities. According to the auditor, Binance is 97% collateralised, missing the 1:1 ratio threshold. The collateral excludes out-of-scope assets in loan and margin accounts. Binance’s long-standing concerns of opaque operations are also raised in Mazars report.
Not only Mazars has raised questions on Binance’s proof of reserves. A renowned accounting professor and former chief auditor of US PCAOB also says Binance’s reserves raise red flags. Douglas Carmichael says Binance reserves fail to answer all the investor’s questions on collateralisation.
The recent comments and queries on Binance’s proof of reserves will surely be a concern. As the world’s largest crypto exchange, a collapse could be catastrophic. The further confidence hit could slam BNB, although other macro factors are also at play.
A technical outlook shows BNB on a decline. The MACD indicator is shifting to bear territory and shows momentum is weakening for the cryptocurrency. The next potential level for BNB is $266.
The scrutiny of Binance’s reserves could weigh on price, at least in the short term. However, the US inflation report and the Fed’s policy action are events to watch as the BNB price slides to $266.