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Over the past few days, the crypto community has witnessed multiple changes in Binances bitcoin balance. The abrupt flow of bitcoins occurred shortly after Binance temporarily halted BTC withdrawals on its platform. The series of events has led some to believe that whales were jumping ship, raising concerns about the overall health of Binance. But is that really the case?Is Binance about to go bust? Lets discuss.

What has happened so far?

The sequence of events commenced on May 8, when Binance temporarily suspended Bitcoin withdrawals on its platform due to congestion issues affecting the Bitcoin network. During the same day, a number of bitcoin inflows and outflows were noted on the exchange. As per CryptoQuant, the changes consisted of an outflow of 117,359 BTC, an inflow of 10,036 BTC, and an outflow of 40,184 BTC. The same accounted for nearly $4 billion, representing almost 30 percent of Binance's net bitcoin reserved balance.

As BTC withdrawals remained halted, rumors started circulating on social media platforms that Binance could possibly be financial trouble. A crypto analyst said, Billions of dollars have been withdrawn from Binance while the price of Bitcoin continues to plummet. This is a big red flag. This sort of behavior happens during insolvency/legal risks.

However, Binance later clarified that it halted BTC withdrawals since there was a glut of pending transactions. This had happened since miners were not rewarded with a high enough fee to log the trades on the blockchain, leading to a backlog.

It also clarified that its BTC outflows was a result of internal movements between Binance's hot and cold wallets, necessitated by BTC address adjustments.Currently, Bitcoin withdrawals have been re-enabled on Binance.

In the Bitcoin blockchain, transactions are broadcasted to the mempool, where miners select transactions to include in the next block. It was observed that a significant backlog of Bitcoin transactions had resulted in a surge in transaction fees. On May 7, the mempool held a staggering 395,000 unconfirmed Bitcoin transactions, in contrast to just 56,500 on April 26, according to data from Blockchain.com.

This incident coincided with another event on Friday, where Bitcoin transaction fees reached its highest levels in nearly two years, averaging around $9.5 per transaction. Although fees slightly decreased to about $8.8 on Saturday, they were still 500 percent higher compared to the past six months when Bitcoin transactions averaged around $1.4.

Many analysts have attributed this incident to a combination of factors, including congestion in the Bitcoin network, higher transaction fees, and the increasing number of inscriptions (NFT-like assets) created through Ordinals.

Bitcoin network's core developer, Peter Todd, presented a different perspective. He stated that Bitcoin is not encountering congestion but rather high demand. He suggested that Binance should enable users to specify the fee they are willing to pay for withdrawals and process transactions accordingly. Todd mentioned that it costs approximately $5 to ensure inclusion in the next block, which should not be a significant issue for Binance, considering it likely operates with fractional reserves.

Crypto community response

Meanwhile, another data point emerged from Coinglass on May 9, revealing over 183,080 Bitcoin outflows from Binance.

One author from CryptoQuant voiced his concerns on Twitter, questioning whether these actions were intentionally done to create panic. He highlighted the perspective of users, who witnessed the movement of 170k BTC to another address while their ability to withdraw was temporarily blocked. He also asked if there were any responsible managers who would think before taking such irresponsible actions again.

A Bitcoin analyst named Jan Wustenfeld responded to the tweet, expressing his belief that the movements and the temporary withdrawal closure were likely related. He suggested that the funds were moved to address the increasing transaction fees, which led to the temporary measure.

Reflecting on the recent FUD surrounding Binance, a crypto educator named Crypto Busy emphasized the importance of scalability solutions for exchanges and wallets. He stated that Bitcoin itself remains stable but highlighted the need for improved scalability. He concluded with the reminder, "Remember not your keys, not your crypto," emphasising the importance of self-custody in the crypto space.

Conclusion

Given that Binance is the largest crypto exchange in the world, such unusual movements can be worrisome. Similar instances have occurred in the past but Binance CEO Changpeng Zhao (CZ) has dismissed them as saying "business as usual."

However, according to what experts have said, the aforementioned events appear to relate to difficulties in the Bitcoin blockchain rather than concerns at Binance.

So, while the string of incidents may be interconnected, there isn't much evidence to imply that Binance will go bankrupt anytime soon. For the time being, its answers regarding the aforementioned incidents appear to have alleviated concerns that the exchange is in financial danger.

See the original post:

Is Binance going bust? Spot market outages and BTC outflows spark fears - CNBCTV18