Binance customers withdraw over £1 billion in 24 hours after SEC lawsuit

More than £1 billion in crypto has been withdrawn from the world’s largest digital asset exchange in the past 24 hours after the firm was dealt a hammer blow by the US financial watchdog suing it for breaching securities law.

Binance saw $1.6 billion (£1.3 billion) in Ethereum outflows since yesterday, data from analytics business Nansen shows, while inflows stood at $872 million, amounting to the biggest single-day net outflow since fears spread of a banking crisis in March.

The US Securities and Exchange Commission yesterday accused Binance and its founder Changpeng Zhao of running unregistered crypto trading platforms, selling unregistered crypto products and having “enriched themselves by billions of U.S. dollars while placing investors’ assets at significant risk,” according to a complaint filed on Monday at a federal district court in Washington.

SEC

The court filing alleges that while the company said its US exchange, Binance.US, was operationally independent and US customers were restricted from using Binance.com, “Zhao and Binance secretly controlled the Binance.US platform’s operations behind the scenes” and “secretly allow high-value US customers to continue trading on the Binance.com platform.”

SEC chair Gary Gensler said: “We allege that Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law.

“As alleged, Zhao and Binance misled investors about their risk controls and corrupted trading volumes while actively concealing who was operating the platform.”

Binance said in response: “We respectfully disagree with the SEC’s allegations that Binance operated as an unregistered securities exchange or illegally offered and sold securities. We work diligently to comply with laws and regulations applicable to our business.

“Because of our size and global name recognition, Binance has found itself an easy target caught in the middle of a U.S. regulatory tug-of-war.”

The exchange last saw outflows of a similar magnitude in mid-March, according to news site CoinDesk, when crypto traders were alarmed by the collapse of Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank, financial institutions which many crypto businesses held accounts with.

Binance has come under intense scrutiny over its operations by regulators in the US and UK amid a wider crypto crackdown in the wake of the downfall of rival exchange FTX.

In 2021, the UK’s Financial Conduct Authority ordered Binance to stop all regulated activity in the UK and issued a warning to consumers about the site, adding: “Be wary of adverts online and on social media promising high returns on investments in cryptoasset or cryptoasset-related products.”

Binance bosses have since mounted a fresh charm offensive in a bid to restore the crypto firm’s fraught relationship with the UK’s finance watchdog.

Chief Compliance Officer Noah Perlman said: “I think there is a general increased scrutiny in this area given some of the well-publicised issues that this industry has had.

“[But] wherever we are we want to be in sync and collaborative with the regulators and make sure we’re delivering what they need in a transparent way, to ensure that we’re not operating in grey area.”

Binance co-founder He Yi, has previously slammed the UK as the “most stressful” country for crypto regulation, while co-founder Changpeng Zhao had warned only “novice regulators…want to be the most strict regulator.”

There were further signs of the woes facing the crypto industry today after crypto mining business Argo Blockchain plunged to a $9 million loss for the first quarter of 2023 compared to a $2 million profit the previous year, while sales slumped 40% to $11 million. The firm continues to fight for its survival after it warned last year it was running out of cash.

CEO Seif El-Bakly said: “We are taking a much more critical view of all operating expenses, and we’ve implemented a robust internal process aimed at reducing non-mining operating expenses. We are also evaluating options to strengthen our balance sheet.”

Argo shares fell 5% to 8.7p.