The latest crackdown on Binance USD (BUSD) is unlikely to cause “major structural changes” in the crypto market, according to this report.
What the BUSD Crackdown Means for the Broader Crypto Market
A few days ago, the US Securities and Exchange Commission (SEC) issued a Wells Notice to Paxos for issuing an unregistered security, the stablecoin Binance USD (BUSD). Following the news, Paxos has announced that the company will stop issuing new stablecoin tokens as of February 21, 2023.
Since BUSD is one of the largest players in the market (currently sitting at number 7 in the largest cryptocurrencies according to the market cap list), investors have been wondering what effect this debacle will have on the sector. In its latest weekly report, Arcane Research has tackled this exact topic.
According to the company, the enforcement is mainly aimed at the cryptocurrency exchange Binance, and not the BUSD issuer Paxos itself. This is evident from the fact that Paxos has announced that it will continue to offer BUSD redemptions until at least February 2024, with its own stablecoin USDP as one of the two ways to issue money (the other being the US dollar). “This should give hope to Circle to avoid the same fate as stablecoin USDC,” the report notes.
One change that may be visible in the market is in the dominance of Bitcoin spot trading volume of different stablecoin pairs. The chart below shows how USD Tether (USDT) and BUSD are trading today.
Looks like BUSD's share has gone up in recent months | Source: Arcane Research's Ahead of the Curve - February 14
From the chart, it can be seen that the dominance of the Bitcoin spot trading volume of the BUSD pair has increased from 16% to 27.6% in the past half year. Factors that led to this development were the removal of fees and the consolidation of the stablecoin pair to BUSD by Binance. At this time, USDT took about 3.5% of the spot market share.
The report believes that the latest failure may mean that the trading dominance of stablecoins has now peaked and USDT could benefit from a larger share again.
For the offshore derivatives market, Arcane Research thinks that the BUSD pair will probably reduce open interest (which can be seen as a rotation towards linear USDT perps or inverse perps), but in reality the pair will play only a small role. in both Bitcoin and Ethereum perps open interest.
“This cannot represent a critical structural change in the market, at present,” the report said. “A ban on USDC or USDT not domiciled in the US could have more dramatic implications, but the focus on BUSD over USDP suggests this path is less likely.”
As for the impact on Binance itself, the exchange will likely have to either restructure the stablecoin pair, as it previously merged all of them (except USDT) into a BUSD pair, or find a new issuer for the stablecoin.
BTC price
At the time of writing, Bitcoin is trading around $22,700, down 1% over the past week.
Bitcoin seems to have surged in the past day | Source: BTCUSD on TradingView
Featured images from Kanchanara on Unsplash.com, charts from TradingView.com, Arcane Research