Binance, the world’s largest crypto exchange by volume, said it will convert a fund containing nearly $1 billion in reserves into various digital currencies, pushing those currencies up but failing to soothe nerves about increased U.S. scrutiny of its operations.
“Given the changes in stable coins and banks, #Binance will convert the remaining of the $1 billion Industry Recovery Initiative funds from BUSD to native crypto, including #BTC, #BNB and ETH,” Binance founder and CEO Changpeng Zhao said.
Binance had earmarked the funds for supporting troubled but viable crypto enterprises which were shaken by the collapse of FTX in November. However, Binance – whose decision to pull the plug on FTX triggered that collapse – hasn’t closed any major support deals since the turn of the year.
The move comes after a wild week for cryptocurrencies, which were hurt by the failure of three of the biggest institutions that facilitated money flows between the parallel worlds of crypto and fiat currency – Silicon Valley Bank, Signature Bank (NASDAQ:SBNY) and Silvergate Capital (NYSE:SI).
Their collapse has triggered widespread alarm in crypto circles, undermining their ability to trade freely and causing panicked selling of tokens deemed to be at risk. USD Coin, the world’s second biggest stablecoin by outstanding volume, fell as low as 88c over the weekend before recovering, after it became widely known that $3.3B of the reserves backing it were on deposit at Silicon Valley Bank. The panic subsided after the Federal Reserve indicated on Sunday that it would honor all deposits – not just federally insured ones – after taking the bank over on Friday.
The prices of Bitcoin, Ethereum and BNB, a Binance native token, all rose in response as Binance’s news coincided with a general sense of relief that a disaster had been avoided.
However, while Zhao styled the move as a vote of confidence in crypto and an exercise in “transparency”, others were quick to draw parallels with a move by Do Kwon, the founder of the ill-fated Terra/Luna stablecoin network. to transfer its cash reserves into Bitcoin shortly before it collapsed last May.
Various moves by U.S. regulators in recent weeks, along with unflattering disclosures about its operations, have made it harder for Binance to operate in the U.S. Regulatory scrutiny has increased sharply since the collapse of FTX exposed how vulnerable U.S. customers of crypto exchanges were to the governance risks of unregulated entities offshore. Reuters reported internal Binance documents in February showing that Binance’s offshore parent had effective control over its U.S. operrations – something that Zhao has repeatedly denied.
“Given Signature/Silvergate failures, any bank doing any crypto-related work poses a systemic threat and faces a 24-7 U.S. regulatory colonoscopy,” said John Reed Stark, a former head of enforcement at the Securities and Exchanges Commission via Twitter. “If there is no way to cash-in casino chips after gambling, people will stop going to casinos.”