Binance Bitcoin Reserves and Customer Balances Shift
In a recent analysis of exchange reserves, it was revealed that Binance, the world’s largest cryptocurrency exchange by trading volume, experienced a notable decline in its bitcoin (BTC) reserves, which fell by approximately $355 million last month. This shift occurred simultaneously with a substantial increase in customer balances, which surged by over $4 billion, bringing these two figures closer together.
As the year began, Binance held 622,192 BTC spread across third-party custody and various exchange balances. However, by February 1, this number had decreased to 618,563 BTC. Conversely, customer net balances saw a significant rise, increasing from 575,296 BTC to 615,816 BTC. Consequently, the rate of collateralization dropped from 108% to a flat 100%.
Additionally, balances of Tether’s USDT stablecoin also experienced a decline, with a drop of around $25 million, while customer balances rose by $2.6 billion. The reasons behind these reserve adjustments remain somewhat ambiguous, as Binance has not provided immediate commentary in response to inquiries from CoinDesk.
One possible explanation for this reserve shift could be that Binance is reallocating funds to pursue investment opportunities rather than maintaining an over-collateralized position. It is important to emphasize that Binance continues to maintain a robust financial standing; at current market prices, the exchange holds an impressive $160 billion worth of 34 crypto assets, all of which are secured at a 1:1 ratio or better against user balances.
The practice of exchanges publicly disclosing proof of reserves gained traction following the catastrophic collapse of FTX in November 2022. This incident was largely triggered by a fragile balance sheet filled with illiquid altcoins, ultimately leading to a scenario akin to a bank run, where the exchange was unable to satisfy user withdrawal requests.
The fallout from FTX’s collapse initiated a liquidation cascade that reverberated throughout the entire cryptocurrency sector, causing bitcoin to plummet to a cycle low of $16,463. Fortunately, the cryptocurrency market has since rebounded, with BTC recently trading around $97,373.
