On May 19, 2021, many retail investors lost a lot of money when Binance froze amid a Bitcoin crash from $38,000 to less than $30,000 within a 30 minutes timeframe.
There are video reports claiming that Binance’s futures platform developed some sort of bug making it impossible to add collateral to losing long positions. As the price started to recover, one would expect a lot of winning short positions to close out, to realize their gains.
But the exchange seized their margin collateral and liquidated their holdings. As a result, Binance traders around the world have been trying to get their money back, The Wall Street Journal reported.
A detailed analysis of this situation and about the insufficient Binance’s Insurance Fund was done by Carol Alexander, Professor of Finance at Sussex University Business School and Visiting Professor at Peking University HSBC Business School. She is also the Co-Editor of the Journal of Banking and Finance.
Francis Kim, a tech entrepreneur from Australia was one of a number of traders who lost money on Binance that day. He started his own investigation about Binance, posted his research on this thread on Twitter, and shot a video.
I decided to talk to Mr. Kim and to share his story for Gokhshtein Media.
First, a little about you.
I’ve been a Software Engineer for over 10 years. I’m also a tech startup founder as well as a Derivatives trader with 7 years of experience.
How long have you been involved in crypto?
From 2015 but Crypto Derivatives only from April 2021.
When did you actually start to trade crypto and join Binance?
What happened on May 19, 2021?
On the surface, a major outage happened. Users were not able to close out of positions or put in profit, stop-loss orders. The same thing happened to me.
How much money did you lose?
I was profiting when the outage happened. I have a screenshot of my account balance showing an unrealized ~ 171,000 USD when this happened. All of it ultimately got liquidated.
Source: Francis Kim. The amount of money that could not be realized due to the platform not working.
Have you ever experienced a similar situation on other exchanges?
Nothing like this has ever happened in my 7 years of derivatives trading.
Did Binance ever comment on this situation?
There were unofficial comments, individually through Customer Service. The only thing official was about the Binance Leveraged Tokens going into an emergency maintenance mode as far as I know.
What did you discover during your investigation?
How Binance hides its structure at a global level along with its ties with China. Also, what Binance was before it was called Binance. In addition, there’s incriminating forensic evidence in their API trading data.
What was the most surprising or shocking thing you figured out during your research?
I’m still in shock about how they handled the situation afterward. In terms of research, I’m still putting the pieces together. But at a high level, the data tells us the same story as during their normal day-to-day business. Binance does not care and they will take your money when they want to.
What about other traders who lost their money on Binance?
Yes, there are hundreds at least. I’m connected with 4 victims groups around the world. These victims are retail traders that got taken advantage of with no closure given.
So what’s next for you?
I have a few goals. I’d like to make a documentary about my findings. I’m also in talks with a firm that will potentially represent the May 19 victims in an effort to bring Binance to justice.
Do you want to sue Binance? Is it possible to get your money?
Binance prohibits Class Actions or litigation before an arbitration as part of their Terms. This is totally unfair in many ways and their Terms and actions give zero fairness to the economically disadvantaged especially.
What is the key lesson you learned from this situation?
Do not trust a centralized crypto exchange that has a bad reputation.
Based on this experience, what sort of advice do you have for the global crypto community?
Expanding on my lesson, the trouble is actually knowing who the good and bad players are. Yes, recent regulatory actions have put Binance under the spotlight. But in April when I signed up it was a little harder to know about Binance’s real reputation. All I knew was that they’re the biggest crypto exchange and I do like crypto. So after putting 2 and 2 together, you discover that it’s easy to get fooled.
Any concluding thoughts?
I believe the power of crypto is ultimately in the hands of the people. The people need to get together and push out the bad actors so that the industry can keep growing and co-exist with frameworks that safeguard the little guys.