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HomeMarketInvestors Shed Binance Exposure as Regulatory Scrutiny Hits Crypto Confidence

Investors Shed Binance Exposure as Regulatory Scrutiny Hits Crypto Confidence

Binance, led by Changpeng Zhao, is the world’s largest cryptocurrency exchange.

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Patricia De Melo Moreira/AFP via Getty Images

Investors appear to be reducing their exposure to Binance, the world’s largest cryptocurrency exchange, with users withdrawing funds and a token linked to the group selling off as the digital asset industry comes under fresh regulatory scrutiny.

Binance has a growing list of headaches from its links to the U.S. financial system. On Monday, Paxos—a U.S. financial technology company that issues Binance USD, Binance’s dollar-pegged stablecoin—said it would end its relationship with the exchange after an order from the New York State Department of Financial Services to stop issuing BUSD. 

Paxos will not be creating any new BUSD tokens, effectively stunting the stablecoin’s ability to grow and calling its future into question. Binance has said that since Paxos manages the token, its market capitalization would only shrink over time.

“The decision will have a profound impact on the stablecoin space and upend 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 U.S. dollar stablecoin, Tether. BUSD trading at a discount to its larger rival is indicative of traders ditching one for the other.

Storm clouds are gathering around the digital asset industry, with scrutiny from regulators and lawmakers that has been pronounced over the past year ratcheting up in the wake of crypto exchange FTX’s collapse in November amid fraud allegations. 

The SEC last week took action against “staking” services—which earn investors yield on tokens like Ether—offered by crypto exchange Kraken, in a move that put a similar business from
Coinbase Global
(ticker: COIN) in the spotlight.

Binance has not been exempt from industry pressures. In January, Binance said its American banking partner,
Signature Bank
(SBNY), would stop supporting crypto customers who buy or sell amounts less than $100,000, with the world’s largest crypto exchange last week suspending all U.S. dollar transfers. 

All this seems to be weighing on sentiment for Binance, which faced “significant outflows” from the exchange as of late Monday, according to Andrew Thurman, an 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 didn’t immediately respond to a request for comment.

Negative sentiment has also leaked into Binance Coin (BNB), a token that Binance issues which can be used for various purposes on the exchange, including as collateral for trading loans. BNB tumbled as much as 10% on Monday, underperforming
and other cryptocurrencies.

Write to Jack Denton at jack.denton@barrons.com

Credit: marketwatch.com

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