‘Will there be another bank run,' fear netizens after SEC charges Binance over misuse of clients’ funds

The US Securities and Exchange Commission (SEC) on Monday said that it has sued Binance and its CEO Changpeng Zhao (CZ) for allegedly artificially inflating trading volumes, diverting customer funds, failing to restrict US customers from its platform and misleading investors about its market surveillance controls.

The US regulator, in its press release, also said that Zhao, the billionaire founder of Binance, secretly controlled customers assets, allowing them to divert investors funds “as they please”.

These are the same charges which the now defunct crypto exchange, FTX and its founder Sam Bankman Fried were accused of.  

Replying to the allegations, Binance said that it disagrees with US SEC’s allegations that crypto exchange operated as an unregistered securities exchange or illegally offered and sold securities.

Soon after the allegations, the famous market commentator Jim Cramer tweeted, “If you have money with Binance, beat your fellow "investors" and get out as your assets are commingled... First out, might get money.”

This tweet sent netizens and crypto community into a shock, who feared that this might lead to a panic among depositors and could cause a bank run on Binance. Previously, a panic had led to a bank run on FTX exchange after Zhao publicly announced that he would be dumping all the FTX tokens, which eventually led to a collapse of the crypto exchange.

Even in the case of Silicon Valley Bank, a panic caused by a news of a big investor withdrawing money led to a bank run and an eventual collapse.

Binance saw a net outflow of $778 million since the SEC came out with its lawsuit. Binance's reserve assets had a net outflow of approximately $1.4 billion in the first hour after news of SEC’s charges broke out, amounting to 2.6 per cent of its total reserve assets of $52.9 billion.

A bank run on Binance can also cause a domino effect that could collapse majority of the crypto ecosystem.

Some netizens said that this is not enough to cause a bank run on Binance but some netizens provided a different argument and analysis on the issue.

US Securities and Exchange Commission on Tuesday requested a federal court to place a temporary restraining order to freeze the US assets of cryptocurrency exchange Binance.

SEC on Tuesday also charged another crypto exchange Coinbase for failing to register as an exchange and trading at least 13 crypto assets that are securities. This includes tokens such as Solana, Cardano and Polygon.

 

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