“Audit Is Meaningless”- Michael Burry On Binance And FTX

On Friday, December 16, auditing firm Mazars Group – which submitted the Proof-of-Reserves report for Binance – suspended all ties with crypto firms. The Mazars Group said that they paused the activity “for entities in the cryptocurrency sector due to concerns regarding the way these reports are understood by the public.”

There were a few doubts raised regarding the opaqueness of the report recently. Commenting on it, Big Short investor Michael Burry said that the audits are essentially meaningless. He added:

“This is the problem. In 2005 when I started using a new kind of credit default swap, our auditors were learning on the job. That’s not a good thing. Same goes for FTX, Binance, etc. The audit is essentially meaningless”.

Binance chief Changpeng Zhao recently stated that auditing firms are not willing to work with crypto businesses. He also added that several audit firms don’t know how to audit crypto exchanges, user accounts, and different blockchains. “There are a few audit firms that audited FTX and they got burned because they give the stamp of approval, and I don’t know how they did the audits. But audits don’t reveal every problem,” continued Zhao.

Is Binance Too Big to Fail?

With the collapse of the crypto exchange FTX, Binance is now the only major global exchange for trading digital assets. The exchange is now facing turbulence with US regulators mulling criminal charges on Binance executives.

This coupled with other news like improper auditing reports and major withdrawals has got investors worried. Mark Lurie, the chief executive officer and co-founder of Shipyard Software, which builds decentralized exchanges, said:

“I don’t think Binance is trying to cause problems, but that organization is now a risk to all of us. Anytime you have one player controlling substantial amount of volume, there’s a lot of systematic risks.”

Tennessee Senator Bill Hagerty also said that an FTX-like implosion of Binance would be “catastrophic for the cryptocurrency industry, and it would prove catastrophic to all of the consumers that utilize the industry”.

However, CZ has iterated several times that the exchange is financially strong. He also said that deposits have started coming in back after recent withdrawals.