Crypto pressed by regulators in 2023
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Crypto – The collapse of the cryptocurrency exchange platform FTX in November gave rise to what has been nicknamed the “Lehman moment” by many.
When one’s business expands to everyone, it is said to be having a Lehman moment.
It alludes to the 2008 collapse of Lehman Brothers, whose bankruptcy also created an issue for the entire world.
The crypto sector, meanwhile, may be considered to have experienced a contagion when FTX went bankrupt.
Public outcry was used to provide regulators who were reluctant to act on a more exact target and a more powerful reason.
Since then, the cryptocurrency industry seems to be following the Dodd-Frank Act’s guidelines, which may stop further risk-taking in an effort to avoid additional financial risks.
The market
Since the advent of cryptocurrencies, the sector has developed and grown into a trillion-dollar industry.
The market is being handled by an inexperienced regulatory infrastructure, and many people are wary of the idea that cryptocurrencies may replace traditional financial instruments in the future.
State and federal officials have stepped up their talk and attempts to control the growing business since the FTX bankruptcy.
Major crypto corporations, however, are not very pleased with the efforts.
The Senate Committee on Banking, Housing, and Urban Affairs convened a hearing on Tuesday to discuss the requirement for further financial protections.
Sherrod Brown, the committee’s chairman, opened the meeting by saying:
“While crypto contagion didn’t infect the broader financial system, we saw glimpses of the damage it could have done if crypto migrated into the banking system.”
“These crypto catastrophes have exposed what many of us already knew: digital assets – cryptocurrencies, stablecoins, and investment tokens – are speculative products run by reckless companies that put Amercians’ hard-earned money at risk.”
Stablecoins
The hearing was called after Paxos, a cryptocurrency business, was told to stop minting a significant stablecoin by New York’s top financial regulator.
The demand just made the crypto space more restricted.
Digital currencies called stablecoins maintain a 1:1 backing from fiat money.
Paxos said on Monday that the New York State Department of Financial Services was instructed to cease producing BUSD, a stablecoin related to Binance.
The order, according to New York officials, is the result of unresolved difficulties with Paxos’ control of its partnership with the cryptocurrency exchange.
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The company said that they would stop issuing the stablecoin on February 21.
Customers will be able to redeem their stablecoin through February 2024, and BUSD circulation will be backed 1:1 by US dollar reserves.
They may also choose to redeem their money in US dollars or convert it to the Pax Dollar, a different stablecoin that the corporation issues.
The business also announced that it will end its partnership with Binance.
The SEC
According to the Securities and Exchange Commission, BUSD should have been registered with the SEC in accordance with federal securities regulations, and the SEC intends to prosecute Paxos.
Paxos “categorically disagrees” with the notion, claiming that the BUSD is not a security under federal securities regulations, in a statement released on Monday.
The company claims that it is prepared to discuss the matter with the SEC and will “vigorously litigate” if required.
Investors have been alarmed by the BUSD directive.
2019 saw the alliance between Binance and Paxos for the stablecoin’s introduction.
The cryptocurrency trading platform had one of its worst days on Monday.
Data supplier Nansen reports that Binance had withdrawals totaling $873 million in net outflows.
Increasing enforcement
The BUSD crackdown is the latest development in numbers exhibiting their authority in the previous several months.
Its actions generate confusion and discontent inside the crypto ecosystem as many proponents have long sought regulatory clarification.
Marcus Sotiriou, a market analyst for GlobalBlock, paid close attention to what was happening.
“Regulation by enforcement is puzzling for crypto enthusiasts,” he pointed out.
“People are desperately trying to figure out how to offer a product legally whilst getting zero guidance.”
Whack-a-mole enforcement tactics have been used by the SEC in recent weeks, drawing criticism for unfairly concentrating the nascent business.
For instance, the SEC and the cryptocurrency exchange Kraken reached a $30 million settlement, which required the business to stop using staking.
Investors can earn a passive dividend on their cryptocurrency assets by doing away with the staking method.
The resolution brought up issues with concurrent exchanges using staking services.
Staking is seen as crucial to ensure the stable intersection of several coins by cryptocurrency enthusiasts.
Regulators cautioned US banks earlier in January about a number of hazards the cryptocurrency market carries, including:
- Fraud
- Shoddy risk management
- Volatility
“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” said the regulators.
