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Former SEC Attorney Warns Binance Will Face “Inevitable” Bank Run

Mon, 03/06/2023 - 20:07
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Alex Dovbnya
Former SEC attorney John Reed Stark has warned that Binance, the world's largest cryptocurrency exchange, could face an "epic bank run" due to its lack of US regulatory oversight
Former SEC Attorney Warns Binance Will Face “Inevitable” Bank Run
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Binance, one of the world's largest cryptocurrency exchanges, may face an "epic bank run," according to John Reed Stark, a former attorney for the US Securities and Exchange Commission (SEC).

In a tweet posted on March 6, Stark called Binance a "shadow bank" that mints its own counterfeit currency while providing a range of financial services with no US regulatory oversight or audit.

Stark's comments come amid growing concerns from US lawmakers over Binance's operations.

In a recent letter, U.S. Senators, including progressive Democrat  Elizabeth Warren, called for the company to hand over its records, citing money laundering and other threats. Binance has denied any wrongdoing and claimed innocence in response to the Senators' concerns.

Now, Stark believes that a bank run is inevitable, and the consequences for investors could be devastating. He noted that, unlike a traditional bank, Binance is not subject to the same regulations and does not hold deposits in the same way. Once withdrawals are suspended, Stark warned, customers would be cut off, and they could become unsecured creditors.

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Stark pointed to previous cases such as FTX, Celsius, Blockfi, and Voyager, where investors suffered significant losses.

While Brady Dale, a journalist who commented on Stark's tweet, argued that Binance is behaving more like an exchange than a bank, Stark disagreed, stating that a collapse at Binance could have "devastating investor carnage."

"In order for exchanges to run properly, they need mandated oversight, audit, inspection, insurance, net capital limits, commingling rules, licensure of individuals, and a vast array of critical regulatory protections," Stark said.  

The cryptocurrency giant has previously defended its operations and claimed to be committed to compliance with all relevant regulations.

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About the author

Alex Dovbnya (aka AlexMorris) is a cryptocurrency expert, trader and journalist with extensive experience of covering everything related to the burgeoning industry — from price analysis to Blockchain disruption. Alex authored more than 1,000 stories for U.Today, CryptoComes and other fintech media outlets. He’s particularly interested in regulatory trends around the globe that are shaping the future of digital assets, can be contacted at alex.dovbnya@u.today.