Hedge fund manager Michael Burry, known for correctly forecasting the 2008 financial crisis, claims that the issue with auditing cryptocurrency exchanges such as Binance and FTX is the same as when he began employing a new type of credit default swap. “Our auditors were learning on the job,” he explained, adding that this is “not good.”
Michael Burry on Audits of Crypto Firms
Michael Burry, a well-known investor and the founder of investment firm Scion Asset Management, stated on Friday that proof-of-reserves (POR) audits of cryptocurrency exchanges such as Binance and the defunct exchange FTX are meaningless.
Burry is well recognized for being the first investor to predict and profit from the subprime mortgage crisis in the United States, which happened between 2007 and 2010. He is profiled in Michael Lewis’ book “The Big Short,” which was adapted into a film starring Christian Bale about the mortgage crisis.
Burry tweeted in response to Mazars Group suspending proof-of-reserve (POR) audits for cryptocurrency companies:
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.
Burry’s tweet refers to a Bloomberg article that explains that the French accounting firm halted work on crypto firms due to concerns about intense media scrutiny and indications that markets have not been reassured by the proof-of-reserves reports it has published thus far, including for Binance, Crypto.com, and Kucoin.
Jesse Powell, the CEO of competitor crypto exchange Kraken, recently criticized Binance’s POR, which was audited by Mazars. More than $3 billion in money were removed from Binance this week.
In an interview with CNBC on Thursday, Binance CEO Changpeng Zhao (CZ) addressed worries about his exchange’s POR while also claiming that most accounting firms do not know how to audit cryptocurrency exchanges.
The CEO was asked why Binance does not utilize one of the Big Four accounting firms to audit its finances — Deloitte, EY, KPMG, and Pricewaterhousecoopers (PwC) — and whether the crypto firm was unable to produce files and data for auditors to be comfortable providing their stamp of approval. The CEO of Binance simply replied:
Many of them don’t even know how to audit crypto exchanges