Michael Burry, a well-known investor and the founder of Scion Asset Management, declared on Friday that the proof-of-reserves (POR) audits of cryptocurrency exchanges, such as Binance and the defunct FTX, are useless.
The reason Burry is so well-known is because he was the first investor to predict and profit from the subprime mortgage crisis that hit the United States between 2007 and 2010. In “The Big Short,” a Michael Lewis book on the mortgage crisis that was adapted into a Christian Bale-starring motion picture, he is highlighted.
Commenting on accounting firm Mazars Group halting proof-of-reserve (POR) audits for crypto companies, Burry tweeted:
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 makes reference to a Bloomberg article that details how a French accounting firm halted work on cryptocurrency firms due to worries about intense media scrutiny and signs that markets were unconvinced by the proof-of-reserves reports it had previously published, including for Binance, Crypto.com, and Kucoin.
The announcement was made in response to Jesse Powell, CEO of the competing Kraken cryptocurrency exchange, who previously criticized Binance’s POR evaluated by Mazars. More than $3 billion in money was taken out of Binance this week.
In an interview with CNBC on Thursday, Binance CEO Changpeng Zhao (CZ) addressed worries about his exchange’s POR and asserted that the majority of accounting firms lack the expertise to audit cryptocurrency exchanges.
The executive was questioned about Binance’s lack of use of one of the Big Four accounting firms, Deloitte, EY, KPMG, or PricewaterhouseCoopers (PwC), as well as whether the cryptocurrency company was unable to provide the necessary files and data for auditors to feel confident in approving its books. The CEO of Binance merely said:
Many of them don’t even know how to audit crypto exchanges.
