Many exchanges have started to speak publicly about their business health and financial reserves, in order to deny rumors about the risk of insolvency and reassure their users at such a delicate time in the market.
Market leveraged in a house of cards
Anyone who is following the market closely and, especially reading Cointimes* regularly, knows that the cryptocurrency market is experiencing a delicate moment, thanks to a series of bad decisions and financial mismanagement by major players, who have built an economic ecosystem fragile, interdependent and leveraged – in a kind of house of cards, which runs the risk of collapsing in the fall of a fundamental card.
Know more: FOMO and leverage: Investors use loans to buy crypto and delay personal payments Not only is retail facing this risk of insolvency, but we have already reported here that large companies have lent or borrowed from each other and face major challenges. Between them:
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Insolvency risk and need for transparency
The latest case concerns Voyager Digital, which declared bankruptcy on Wednesday (July 6th) due to an exposure of more than $650 million in 3AC, which was settled by court order. As shared by CZ, CEO of Binance, one of Sam-Bankman Fried’s (SBF) companies, Alameda Research, had taken out a $377 million loan from Voyager and was now in court, negotiating a debt settlement agreement.
Did you notice the house of cards? The liquidation of 3AC causes the bankruptcy of Voyager which now affects Alameda Research and could affect Exchange FTX, Sam’s main company and competitor to Binance. To calm the rumors against its exchange, SBF recently stated in a company for Reuters that the company has about $2 billion in reserves. Therefore with very low risk of insolvency on your side. The tendency to “go public” to speak openly about the financial reserves of companies has grown, given the delicate moment and the loss of confidence on the part of users and investors, who demand transparency from platforms to “guarantee” that their funds held by them be safe. Other companies that have also publicly spoken out against the rumors and the risk of insolvency are: Binance, Kucoin and CryptoCom.
“Binance does NOT have third-party loans. Self sufficient.”
Source: @cz_binance on twitter
The risk of insolvency has always existed
Despite favorable pronouncements, the savvy cryptocurrency investor knows the basic rule of self-sovereignty and custody: “Not your keys, not your coins”. Those who do not have sovereignty over their funds, being the owners of the private key that signs their currency transactions, should not count on having any currency. When delegating custody to service providers, the owners of these funds must be aware that the funds can be lost at any time, as the risk of insolvency is present at all times in the financial market – since many companies, like many investors individuals, make poor management decisions, driven by strong emotions such as fear or greed. Personally, I always view all my temporary custodians at risk of insolvency. So much so that this news does not scare me. My money outside of a private wallet is money I “might lose”. This is even one of the reasons why I like it so much. nano (XNO). By having no network fees and deterministically completing transactions in less than a second, it is extremely advantageous to withdraw coins immediately after purchasing on an exchange and re-deposit (very quickly confirming in the company balance) whenever I want to sell. Other networks with higher transfer fees and longer final confirmation delays can create some barriers for investors with little capital, but it’s still a risk and cost that needs to be considered, in favor of security. Many, unfortunately, only realize the importance of this habit of not keeping money in the custody of others when it is too late.
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