Binance’s Response to FTX Collapse, Paxos’ BUSD, and CFTC Lawsuit: A Study of Net Outflows and Reserves
As per data by CryptoQuant, we examine the behavior of Binance’s net outflows and reserves during three recent stress-test periods: December 2022 (the “regulatory FUD” period after the FTX collapse), February 2023 (Paxos’ announcement about stopping BUSD mint), and March 2023 (CFTC lawsuit). We analyzed on-chain data and found that despite increasing regulatory scrutiny, Binance’s BTC and ETH reserves remain at high levels.
This is because users are withdrawing fewer coins from the exchange each time there’s a regulatory-related announcement or negative industry news about the exchange. Furthermore, net flows have remained within historical ranges when compared to total reserves (net flow-reserve ratio).
However, the impact of the CFTC lawsuit on Binance Coin (BNB) and Binance USD (BUSD) is still unclear, especially considering that Binance has been facing regulatory scrutiny in several countries worldwide.
Binance’s CEO has commented that “Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.”
Regarding net bitcoin outflows from Binance exchange, we found that they have been lower over time in periods of regulatory scrutiny. For instance, in December 2022 (the “regulatory FUD” period), Binance experienced net bitcoin outflows of 40,353 BTC in a day (December 12th) and total net outflows of 78,744 BTC between December 10 and December 16. Similarly, in the month of February 2023 (Paxos’ BUSD announcement), the largest daily net outflow was on February 12 for 5,027 BTC. So far, after the CFTC lawsuit was announced, Binance experienced a daily net outflow of 4,505 BTC.
The case of Ethereum net outflows is similar to bitcoin outflows, with total net outflows being smaller in each subsequent period. The highest daily net outflow of Ethereum was 278k on December 12, 2022 (the “regulatory FUD” period). In February 2023 (Paxos’ BUSD announcement), the daily net outflow was 79,706 ETH when the announcement was made. So far, after the CFTC lawsuit was announced, Binance experienced a daily net outflow of 76,146 ETH.
In the case of stablecoin net outflows, on-chain data shows a net outflow of $871M in December 12, a daily-high outflow of $671M in February (although total net outflows during that month were higher than in December 2022), and almost $1B in March since the CFTC lawsuit was announced.
Despite these periods of high net outflows, Binance’s BTC and ETH reserves have remained at “healthy” levels. For BTC, reserves have grown from 509k in December 2022 to 581k currently.
For ETH, Binance’s reserves stand at 4.487 million, compared to a low of 4.420 million back in December 2022.
In the case of stablecoins, reserves at Binance have been decreasing significantly, from $24.5 billion in December to $10.7 billion today, mostly due to a decrease in BUSD reserves, which accelerated after Paxos’ announcement of stopping BUSD minting.
Declining BTC inflows from other exchanges to a particular exchange could suggest that investors/traders see that particular exchange as less desirable to have their coins on. In the case of Binance, inflows from other exchanges mostly show an “oscillating” pattern, with Binance’s inflows mostly oscillating between high and low levels over time.
However, in recent months, there has been a noticeable decline in BTC inflows from other exchanges to Binance, which could indicate a shift in investor sentiment towards the exchange.
According to industry experts, this decline in inflows could be attributed to various factors such as increased regulatory scrutiny, security concerns, and the emergence of other reputable exchanges. Binance has been facing regulatory pressure from authorities in various jurisdictions, leading to the suspension of some of its services in some countries.
Furthermore, there have been reports of security breaches on the Binance platform, which may have eroded investor confidence in the exchange. These factors may be driving investors to seek alternative platforms that offer better security and regulatory compliance.
In response to these challenges, Binance has implemented various measures such as improving its security systems and expanding its compliance efforts to regain the trust of investors. However, it remains to be seen whether these efforts will be enough to reverse the declining trend in BTC inflows from other exchanges.
Overall, the decline in BTC inflows to Binance suggests that investors are becoming more discerning about the platforms they use to trade and store their cryptocurrencies. Exchanges that are able to address regulatory concerns, provide robust security measures, and maintain a good reputation are likely to attract more inflows in the long run.
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