Escalating US efforts to curb the crypto sector kept a lid on digital-asset prices Tuesday as investors digested the implications of an aggressive American regulatory posture.
(Bloomberg) — Escalating US efforts to curb the crypto sector kept a lid on digital-asset prices Tuesday as investors digested the implications of an aggressive American regulatory posture.
An index of the largest 100 tokens added about 1% as of 1 p.m. in Tokyo, partially rebounding from a swoon a day earlier that was sparked by a New York agency’s order to end issuance of Binance-branded stablecoin BUSD.
Bitcoin and Ether, the two biggest digital assets, rose less than 1% to trade at $21,715 and $1,500 respectively. Binance Coin, the native token of the world’s largest exchange, steadied from a near 8% slide Monday.
The move against BUSD cast a shadow over the third-largest stablecoin as well as Binance. Investors remain fearful of any events that might hurt confidence in crypto’s biggest trading platform, given that the chaotic collapse of rival FTX and the turmoil it caused remain fresh in the memory.
The New York State Department of Financial Services said it had directed Binance’s partner Paxos Trust Co. to stop issuing BUSD over unresolved issues tied to Paxos’s oversight of its relationship with Binance. The Securities & Exchange Commission separately is considering taking action alleging that BUSD is an unregistered security.
Stablecoins are intended to hold a set value, for example $1, and about $137 billion are in circulation. They come in a variety of forms and some are underpinned by reserves like cash and bonds. Investors often park funds in stablecoins as they move between crypto trades.
The BUSD developments raise questions about whether the top two stablecoins, Tether and USD Coin, could also face regulatory hurdles. About $342 million of BUSD was redeemed in the past 24 hours, research firm Nansen said.
Crypto Liquidity
“Falling stablecoin market capitalization means falling crypto liquidity and leverage,” Morgan Stanley strategists including Sheena Shah wrote in a note.
“Without new BUSD being created by Paxos, we need to assess whether current holders of BUSD will convert to other stablecoins, having a neutral impact on liquidity, or if concerns over further regulatory actions will reduce overall market demand for stablecoins,” Shah added.
The latest US steps are part of a wider squeeze there that threatens to marginalize crypto. The SEC is set to propose rule changes Wednesday that may make it harder for the likes of hedge funds to work with crypto outfits.
Net stablecoin outflows from Binance hit a one-month high of $587 million on Monday, according to CryptoQuant data. Overall net outflows from the platform amounted to about $600 million in the past 24 hours, the highest in a basket of 21 platforms, Coinglass figures show.
‘Shaken Confidence’
The move to end BUSD issuance “has shaken confidence in the Binance ecosystem,” said Hayden Hughes, chief executive officer of social-trading platform Alpha Impact.
Binance’s Chief Executive Officer Changpeng “CZ” Zhao sought to project strength. He tweeted Tuesday that “FUD is temporary,” using an acronym that refers to fear, uncertainty and doubt.
The upheaval within crypto has stalled a more than 30% rebound in Bitcoin from last year’s digital-asset rout. Investors are awaiting US inflation data Tuesday, which will shape the outlook for interest rates and risk appetite.
For crypto market prices: CRYP; for top crypto news: TOP CRYPTO.
–With assistance from Muyao Shen and Joanna Ossinger.
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