The supply of Binance’s stablecoin, BUSD, has seen a dramatic drop as a growing number of cryptocurrency traders move away from this troubled asset
BUSD, the leading stablecoin from Binance, has encountered a notable reduction in its supply as more crypto traders distance themselves from the struggling asset, leading to a considerable decline in its market capitalisation. Once soaring at $23.49 billion in November 2022, BUSD’s market capitalisation has plummeted to just $6.68 billion today, with its market share shrinking from approximately 22% last year to around 5% now. This substantial drop in market share has coincided with an increase in Tether’s (USDT) market share, which has climbed to 65% as investors seek more dependable stablecoin alternatives.
The swift reduction in the supply of BUSD can be linked to several key factors, including heightened regulatory scrutiny from the New York Department of Financial Services (NYDFS) and the Securities and Exchange Commission (SEC). Paxos, responsible for issuing BUSD, has been instructed by NYDFS to cease its issuance, while the SEC is preparing to take legal action against Paxos for allegedly breaching investor protection regulations. The SEC claims that BUSD qualifies as an unregistered security, a position that Paxos strongly disputes. Nevertheless, the protracted legal dispute with the SEC could last for years, posing potential legal repercussions and significant fines for platforms that continue to support BUSD if it is deemed an unregistered security by the courts.
In reaction to the regulatory challenges, Coinbase has already removed the Binance-affiliated token from its platform, citing that it no longer meets its compliance standards. This decision is likely to add further downward pressure to BUSD’s market value and reputation, amplifying concerns regarding its long-term sustainability. Additionally, the collapse of the Terra algorithmic stablecoin in May, which erased billions from the larger cryptocurrency market, has intensified the scrutiny of the $150 billion stablecoin sector by U.S. regulators. There is a growing concern that stablecoins lacking adequate reserve backing are susceptible to bank runs, further compounding the challenges faced by BUSD.
In summary, the ongoing contraction of BUSD’s supply and market share raises significant alarm, illustrating the persistent volatility and regulatory hurdles present in the cryptocurrency landscape. As investors gravitate towards more trustworthy and stable stablecoin options, BUSD is likely to continue experiencing downward pressure on its value and reputation, resulting in a further decline in both demand and supply.
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