Earlier this month, the SEC once again put the crypto industry under fire by Binance’s own stablecoin BUSD to regulate. This created a lot of fear for other stablecoins, and that is now reflected in the market value of the tokens.
Hardly fallen stablecoin dominance not necessarily positive
Blockworks Research writes that the stablecoin dominance since the top in the indicator fell sharply on November 10. In fact, the value is now at its lowest point in 9 months – 12.7% to be exact. We have not seen that value again since May of 2022.
Normally this is good news for other cryptocurrencies. It generally means that people are willing to take on more risk by investing their stablecoins in volatile tokens. That is often an important indicator for bull markets.
However, the situation now seems to be somewhat different. The SEC and other policymakers have stopped Binance and Paxos from issuing any new BUSD tokens at all. As a result, BUSD will slowly disappear from the market. The same may also be true for other stablecoins that are not yet subject to regulation.
Stablecoins are an important part of the crypto industry as they provide liquidity. Many crypto exchanges use stablecoins in trading pairs. In the trading pair BTCBUSD you automatically get BUSD when you sell your bitcoins. Regulating these stablecoins creates a scarcity of alternatives, causing the market to shrink. There is simply less money.
Stablecoins have shrunk sharply
The market value of BUSD started to shrink as early as November. Soon after, it came to light that Binance had a hole in its books. Since the absolute peak in BUSD has the token shrunk from nearly $24 billion to $11 billion, or about 53%. The decline since the SEC troubles is about 16% so far.
Paxos has a second dollar stablecoin, USDP. The market value of this token shrank very quickly from about $900 million to $700 million. It is not clear whether this token will also run into problems.
In addition to BUSD and USDP, even Circle’s USDC is shrinking, although the contraction has been going on since June last year. Since the SEC started targeting BUSD, USDC has been growing slightly, according to CoinGecko.