Challenges Mount for Binance as $2 Billion Flows Out of Exchange

Cryptocurrency giant Binance is facing a series of challenges resulting in traders withdrawing billions of dollars from the platform.

As previously covered by UNLOCK Blockchain, the Commodity Futures Trading Commission has accused Binance of operating unlawfully in the US and violating regulations intended to combat financial crime.

Binance recently reintroduced fees for spot bitcoin trading, having previously removed them, and experienced a software glitch that forced it to suspend spot trading for several hours.

According to data provider Nansen, Binance has seen net outflows of $2.1 billion on the Ethereum blockchain over the past seven days. Overall, Binance currently holds $63.2 billion in its publicly disclosed wallets.

Andrew Thurman, an analyst at Nansen, also commented that the rate of withdrawals has increased following the CFTC announcement.

Nevertheless, Binance has experienced more significant outflows in the past as a result of regulatory actions.

According to Thurman, outflows were particularly notable in February after regulators in New York announced a ban on the issuance of Binance's stablecoin, BUSD.

It is worth noting that at its peak, outflows surpassed $1 billion every 24 hours.

This stablecoin, which is the world's third-largest, has lost more than half its market value this year.

The reintroduction of trading fees by Binance is believed to have contributed to a decline in its spot market share, which dropped from 57% at the beginning of March to a low of 30% on March 24, according to CryptoCompare.

Kaiko, a digital-assets data provider, noted that the majority of trade volume on Binance was zero-fee until the fees were reinstated. Moreover, according to John Quarnstrom, a portfolio manager at crypto hedge fund Iceberg Capital, fees are a crucial consideration when choosing an exchange to trade on. Custodial aspects are the primary consideration, followed by fees.

He explained, "Generally I’ll make a decision to trade on an exchange first and foremost on its custodial aspect; the second is the fees for sure."

Based on CryptoCompare's data, as of March 24th, Binance's market share for the cryptocurrency derivatives market remained at 66%. However, the company faced further issues when a federal judge blocked its American affiliate, Binance.US, from acquiring customer accounts from Voyager Digital while the deal is challenged by federal authorities.

Investors and analysts are closely monitoring Binance for potential regulatory actions in the US and other jurisdictions.

The company's chief strategy officer previously indicated that Binance anticipates paying monetary penalties to settle ongoing US regulatory and law enforcement investigations into its business.

Chris Perkins, President of CoinFund and member of the CFTC's Global Market's Advisory Committee, noted that Binance's efforts to evade US rules and allow Americans to use its offshore crypto exchange constitute an "ongoing fraud."

CFTC Chairman Rostin Behnam also commented on Binance's behavior, stating that the company intentionally bypassed registration requirements by instructing clients on how to connect to the exchange without revealing their US location. Since Binance was not registered with the CFTC, it lacked legal authorization to offer crypto derivatives to American traders, according to the regulatory agency.

During a CNBC program, Mr. Behnam mentioned an ongoing fraud that dated back to 2019 and was in violation of the Commodity Exchange Act. He believed it was a clear case of evasion and required immediate aggressive action. However, the CFTC did not charge Binance or its executives with fraud, but rather was speaking generally to a more general audience about the Binance case, which essentially involves fraudulent activity.

Founder and CEO of Binance, Changpeng Zhao, was disappointed by the CFTC complaint, stating that Binance has been cooperating with the agency for over two years.

Due to concerns about bank runs similar to those that affected FTX and other lending platforms last year, some investors have pulled back from Binance.

François Cluzeau, head of trading at Flowdesk, a crypto market-making firm, reported reducing its exposure to Binance since Friday.