Investors Abandon Crypto Exchange Binance. It is about regulation.
Investors appear to be reducing exposure to Binance, the world’s largest cryptocurrency exchange, with users withdrawing funds and a token linked to the group selling out as the digital asset industry comes under fresh regulatory scrutiny.
Binance has a growing list of headaches from its links to the US financial system. On Monday, Paxos — a US financial technology company that issues Binance USD, Binance’s dollar-pegged stablecoin — said it would end its relationship with the exchange following an order from the New York State Department of Financial Services to stop issuing BUSD.
Paxos will not create any new BUSD tokens, effectively inhibiting the stablecoin’s ability to grow and putting its future in doubt. Binance has said that since Paxos manages the token, its market cap will only shrink over time.
“The decision will have a profound impact on the stablecoin space and undo a pillar of Binance’s aggressive strategy for crypto dominance,” a team of analysts led by Clara Medalie at crypto data provider Kaiko wrote in a note. “Immediately after the news broke, BUSD began trading at a discount to USDT.”
USDT refers to the largest US dollar stablecoin, Tether. BUSD trading at a discount to its larger rival is an indication that traders are ditching one for the other.
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Storm clouds are gathering around the digital asset industry, with scrutiny from regulators and lawmakers voiced over the past year increasing in the wake of crypto exchange FTX’s collapse in November amid fraud allegations.
The SEC last week cracked down on “staking” services — which give investors returns on tokens like Ether — offered by crypto exchange Kraken, in a move that put a similar operation from Coinbase Global (ticker: COIN) in the spotlight.
Binance has not been exempt from industry pressure. In January, Binance said its US banking partner, Signature Bank (SBNY), would stop supporting crypto customers buying or selling amounts less than $100,000, with the world’s largest crypto exchange last week suspending all US dollar transfers.
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All of this appears to be weighing on sentiment for Binance, which faced “significant outflows” from the exchange late Monday, according to Andrew Thurman, analyst at crypto intelligence group Nansen. Much of this was tied to BUSD, with $1 billion in stablecoin outflows representing nearly 6% of the exchange’s reserves, and more than $140 million quickly redeemed with Paxos for dollars, according to Nansen.
Binance did not immediately respond to a request for comment.
Negative sentiment has also leaked into Binance Coin (BNB), a token issued by Binance that can be used for various purposes on the exchange, including as collateral for trade loans. BNB fell as much as 10% on Monday, underperforming
Bitcoin
and other cryptocurrencies.
Write to Jack Denton at [email protected]
