French accounting firm Mazars is suspending all its work with crypto companies, including Crypto.com, KuCoin and Binance, according to a Binance spokesperson.
Mazars has since removed all crypto notifications from its website.
In a statement, a spokesperson for Mazars told Yahoo Finance that the company has “paused its activity related to providing proof of reserve reports for entities in the cryptocurrency sector due to concerns about how these reports are understood by the public.”
Mazars notes: “Proof of Reserves reports are conducted in accordance with reporting standards relevant to an agreed procedure report. They do not constitute an assurance or audit opinion on the subject matter. Instead, they report limited findings based on the agreed procedures which have been performed on the subject at a historical time.”
News of Mazars’ decision was first reported by Bloomberg. Mazars’ withdrawal from the crypto market comes as customers and investors seek more transparency around the crypto exchanges they use in the wake of FTX’s collapse.
Investors have thrown the spotlight on Binance, the largest crypto exchange, after it delivered a report from Mazars last week that was not fully transparent. The exchange also temporarily halted withdrawals of the USDC stablecoin, citing restrictions on daily banking hours during a record period of withdrawals.
Analysts and other market parties had previously criticized reports from Mazars, because the accounting firm would not express an opinion on the correctness of their clients’ financial information or an assurance conclusion.
“Unfortunately, this means we cannot work with Mazars for now,” Dewi Mustajab, a global communications lead for Binance, shared with Yahoo Finance.
Crypto.com, which engaged Mazars in November and released its report on Dec. 7, was unable to comment on the accounting firm’s decision to pause, but stated: “We will continue to engage with reputable accounting firms in 2023 and beyond to increase transparency throughout the industry.”
KuCoin, which had a proof of reserve report from Mazars on Dec. 8, also said it is “open to working with any eminent and reputable auditor,” according to a spokesperson.
Following this news, crypto markets were under general pressure, with bitcoin dropping below $17,000; earlier this week, bitcoin surged above $18,000 for the first time since the FTX collapse.
According to data from Binance and CryptoQuant, Binance saw a total of $6 billion in outflows between Monday and Wednesday, its largest customer withdrawal period since 2020. However, against its ratio of reserves, the company has resisted larger withdrawal waves in 2021 and 2020, according to data from CryptoQuant.
Speaking via Twitter Spaces on Wednesday, Binance CEO Changpeng Zhao called the moment a “stress test,” though he may not have given investors the reassurance they needed.
Zhao said proving asset reserves “isn’t as easy as people think” and that the company will roll out more information “in the coming weeks.”
Zhao then outlined what Binance’s worst-case scenario should look like. “As long as we fail honorably and credibly, we let people take their money because the company ran out of money, that’s okay,” he said.
Crypto exchanges have become increasingly defensive since FTX revealed it was mixing client funds with those of its sister hedge fund, Alameda Research.
Under new management, FTX is reportedly looking to sell four portions of its Chapter 11 company in an effort to recoup what the new CEO said during Congressional testimony on Tuesday, a gap of more than $7 billion.
While a proper financial audit is paramount, Binance’s financial position is at least not as precarious as FTX, according to a report from blockchain analytics platform CryptoQuant.
According to the report, CryptoQuant was able to verify Mazars’ report, which showed that Binance’s bitcoin holdings are fully covered. It also said that the company did not engage in “FTX-like” behavior, meaning that assets were not moved to non-Binance wallets. According to the findings, Binance also has a “clean reserve”, meaning that the share of its own token, BNB, “is still a small part of its assets”.
“Our analysis should not be interpreted as a favorable opinion of Binance as a company, the ecosystem of the BSC/BNB networks or the BNB token. It is merely a sign that the amount of BTC Binance exchange says it holds as liabilities at the time when the PoR report was carried out makes sense, according to on-chain data,” CryptoQuant said in its report.
David Hollerith is a senior reporter at Yahoo Finance covering the cryptocurrency and stock markets. Follow him on Twitter @DsHollers
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