Crypto slumps as Mazars report erodes trust further

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By Geoffrey Smith

AiVIF.com -- Cryptocurrency prices fell on Friday after new developments cast fresh doubt on the reliability of reserve figures provided by the world's largest exchange.

Bloomberg reported Binance as saying earlier that tax and audit firm Mazars, which published a controversial attestation about Binance's reserves last week, has now paused all work with the crypto sector. Its other clients include KuCoin and Crypto.com, the exchange promoted by Hollywood star Matt Damon and others.

“Mazars has indicated that they will temporarily pause their work with all of their crypto clients globally," Bloomberg quoted a Binance spokesman as saying. "Unfortunately, this means that we will not be able to work with Mazars for the moment.”

The news removes one of the key supports to the repeated claims by Binance founder and CEO Changpeng Zhao that the exchange manages its customer deposits properly - a concern among the crypto community that has flared up since the collapse of rival exchange FTX in November. FTX misappropriated over $8 billion in customer funds to cover up losses at an affiliated hedge fund, Alameda Research, according to U.S. fraud charges unsealed this week.

The link to the attestation provided by Mazars has now been deactivated on Binance's website.

Mazars had said at the time that the data provided to it by Binance indicated that the exchange's available reserves exceeded its liabilities to customers, validating Binance CEO and founder Changpeng Zhao's repeated claims. However, it had added important caveats to its assessment, flagging that it had worked under specific restrictions imposed by the exchange and had not been able to verify all of the data with third parties. As such, the attestation could not be seen as an audit, which typically involves confirming company data on issues such as custodial arrangements with relevant third parties.

While hard to see as a positive for crypto in any sense, some noted that Mazars’ action still left a lot of room for doubt as to the actual soundness of Binance.

In a social media thread retweeted by Zhao, Jeff Dorman, chief investment officer at digital asset platform Arca, said Binance was trapped in a “guilty till proven innocent" environment, adding that “it's virtually impossible for Binance (or any exchange) to actually prove innocence in a timely fashion.”

Dorman argued that auditors' sensitivity to reputational damage has been elevated since the collapse of Enron effectively killed Arthur Andersen, one of the world's biggest auditing firms, 20 years ago.

"If your base case is that "no audit = bad actor", you may want to consider that "no audit may = auditors are scared of being wrong," Dorman said.

By 05:55 ET (10:55 GMT), Bitcoin was down 3.6% at $17,065, reversing all of its gains for the week. Ether was down 6.0% at $1,209.37.