So says David Siemer, head of Wave Financial, a management company specializing in cryptocurrencies.
The collapse of the American giant FTX reshuffles the cards in the world of so-called centralized cryptocurrency exchange platforms (CEX), which in particular make it possible to sell, buy or store the private keys of its cryptocurrencies. However, realizing the importance of owning their cryptocurrencies themselves, more and more users have decided to withdraw them from CEX and store them in more secure wallets.
Withdrawals from platforms carried out en masse can destabilize those that do not have the necessary funds to meet such demand. It was in this context of distrust that FTX did not weather the storm and went bankrupt on 11 November. While the American giant was the second largest crypto platform and was valued at over $32 billion, some experts question the resistance from competing platforms.
“We expect a large number of other exchanges, some of which are among the top 10 exchanges, will also be functionally insolvent,” said David Siemer, head of Wave Financial, a brokerage firm. Management specialized in cryptocurrencies, for its clients.
The latter does not state the reasons why the latter could be insolvent. But the climate obviously remains bleak for these platforms. In addition to this increased distrust of CEXs after the fall of FTX, there are actually other debilitating factors.
A bear market that hurts
For months, the cryptocurrency market has been in a bear market, with bitcoin losing more than 70% of its value since its all-time high last November, at $69,000. Against this background, most CEXs – with the exception of Binance – have announced layoff plans over the past few months.
This is the case with Kraken, which recently announced that it had to lay off 30% of its workforce, following in the footsteps of giants Coinbase and Gemini, which a few months ago parted ways with 10% of their employees. Coinbase, the only publicly traded exchange platform – which should therefore, in theory, be more transparent – expects a 50% drop in its results this year. For its part, Gemini has been in bad shape for several weeks. The crypto exchange has engaged creditors in an attempt to resolve liquidity problems related to one of its partners weakened by the fall of FTX, Genesis. The company even suffered a breakdown of more than 7 hours last week, preventing its customers from transacting.
In addition, the giant Binance recently called on CEX to publish “proof of reserves” of their funds, in order to provide transparency about the cryptocurrencies circulating on the platforms. The goal is to have cash equal to or greater than the cryptocurrencies that customers deposit. However, these “proofs of reserves” are criticized by many experts, who believe that they do not allow knowing everything about these platforms, such as their debts. This is how the French company Mazars decided on Friday to temporarily suspend all its audits of the proof of reserves of its crypto clients, including the giants Binance, Crypto.com and KuCoin.
A top 10 dominated by Binance
The specialized site Coinmarketcap has established a ranking of CEX according to various criteria, from daily trading volumes to liquidity and the number of daily visits. Focusing on the top 10, Binance leads with $10 billion in trading volume, followed by Coinbase ($1 billion) and Kraken ($500 million). Other exchanges include KuCoin, Bybit, Bitstamp and Gemini. However, no platform escapes either the crypto winter or questions about their economic model in the current context.
Today, the largest exchange Binance is in turmoil, between the publication of an investigation by Reuters on suspicion of money laundering, the abandonment of his main auditor Mazars and the complaint filed by 15 investors against him in France. From there to collapse like FTX?
“It is the biggest stock exchange in the world”, says David Siemer. “There is no way in my mind that Binance lost any money, just like FTX lost most of the money, and they don’t make directional bets.”