Cryptocurrencies feel the heat as regulatory pushback hardens
Most cryptocurrencies have been trading lower, with the native token of the Binance exchange dropping the most since a November market meltdown, as the regulatory crackdown on the digital-asset sector heats up.
Binance Coin dropped as much as 11 per cent to $US279.50 ($402) this week, erasing a portion of its gains registered during a broader market recovery in January. It tumbled about 18 per cent on November 9, when Binance pulled out of talks to purchase failed rival FTX. Cardano, solana, polygon and other so-called altcoins are also trading lower. Bitcoin remains little changed.
Binance had more than $US1 billion worth of stablecoin in outflows in the past week.Credit:Bloomberg
The New York State Department of Financial Services said on Monday it had directed Paxos Trust to stop issuing new tokens of crypto’s third largest stablecoin, a Binance-branded coin known as BUSD that has roughly $US16 billion in circulation. BUSD fell below the one-to-one ratio versus the dollar that it aims to maintain.
Withdrawals of stablecoins including BUSD from Binance’s customers jumped following an initial announcement from Binance disclosing the decision. Blockchain data firm Nansen estimated that Binance had more than $US1 billion worth of stablecoin in outflows in the past week. BUSD worth about $US144 million were redeemed back to dollars in just a few hours, said Andrew Thurman, researcher at Nansen.
“Binance will continue to support BUSD for the foreseeable future,” Changpeng Zhao, CEO of Binance, said in a Twitter thread. “We do foresee users migrating to other stablecoins over time. And we will make product adjustments accordingly; e.g. move away from using BUSD as the main pair for trading, etc.”
Crypto markets have since held mostly steady after an initial drop, as investors grappled with the implications of the development. The move by the New York financial watchdog follows a months-long rout in digital asset prices that led to several high-profile company and project collapses. Last week, crypto exchange Kraken said it would scrap so-called staking services in the US and pay $US30 million to settle claims by the US Securities and Exchange Commission that the staking broke rules.
Both Binance and Kraken experienced outflows of users’ funds, given regulatory concerns over the two platforms. The net outflow, the difference between the value of crypto coming into and leaving the exchange, was around $US859.5 million on Binance. That amount for the much smaller exchange Kraken is at around $US127.7 million.
Bitcoin, the largest digital asset by market value, fell about 0.5 per cent to $US21,635 as of 1.36pm in New York. Second-ranked ether shed about 1.7 per cent to $US1486.
Stablecoins such as Paxos’s BUSD, Tether’s USDT and Circle’s USDC are crypto tokens that are intended to hold a set value, for example $US1. They come in a variety of forms and some are underpinned by reserves such as cash and bonds. Investors often park funds in stablecoins as they move between crypto trades, with about $US136 billion currently in circulation.
