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Binance has converted over 800 million BUSD from its Recovery Fund to other cryptocurrencies amid heightened U.S. scrutiny on stablecoins. Regulators like the SEC and CFTC are looking to enact strict rules on stablecoins and other cryptocurrencies.

The recent scrutiny and FUD (fear, uncertainty, and doubt) surrounding Binance and its affiliated BUSD (Binance USD) stablecoin have raised questions about its safety and reserves as a digital asset.

While it is true that regulatory scrutiny and negative press can cause fluctuations in the value of any digital asset, it is essential to understand the specific concerns and evaluate the overall safety of BUSD as an investment.

One of the main concerns surrounding BUSD is its association with Binance, a cryptocurrency exchange that has faced increased regulatory scrutiny in recent months. The exchange and its CEO, Changpeng CZ Zhao, have been accused of trading violations by the United States Commodity Futures Trading Commission.

On top of the CFTC allegations, the chief executive alsofacesa $1B lawsuit for promoting unregistered securities. But the drama continues to see new twists and turns. Of late, unverifiedrumorscirculated about Zhao being issued an Interpol Red Notice, insinuating that hes wanted for arrest.

As a result, some regulators have restricted or banned Binances operations in their jurisdictions. Consequently, many users rushed to pull their funds off the exchange,accountingfor more than $1.5 billion per its March report.

Despite the Binance team taking steps to clear the air, its native BNB coin witnessed a 4% price plunge that has since mostly recovered.

But this isnt the onlygray patchregarding Binance and its operations.

Its important to understand that there are two versions of the Binance stablecoin a Binance-pegged BUSD and the Ethereum-based Paxos-backed BUSD stablecoin. The stablecoins collective collateral backing may not be fully transparent according to findings.

On Jan. 11, Binances representativeconfessedflaws and early operational issues with its BUSD stablecoin. The acknowledgment by Binance comes as the exchangefaceda mountain of public scrutiny over its finances and missing collateral.

Later the following month, Paxos, the BUSD token provider,endedits partnership with Binance. Aligning with the regulators notice, Paxos halted minting BUSD, which directlyaffectedthe stablecoins peg to the U.S. dollar. The situation worsened after witnessing the failure of three crypto-friendly banks.

Amid the concern mounting around stablecoins, Changpeng Zhaoasserted that with the changes in stablecoins and banks, the exchange will be converting the remaining $1 billion funds in its Industry Recovery Initiative to native crypto. These cryptocurrencies included BTC, BNB, and ETH.

Theswap, per Binance, wasnecessaryfollowing Paxos decision to stop minting BUSD, resulting in a gradual market cap reduction. The BUSD supply continues to fall, down to around $113 million worth of BUSD left in the Binance Fund Wallet.

Overall, Binance has converted over 800 million BUSD to other cryptos from its Recovery Fund. This triggered an array of narratives. Some replies to Zhao compared the situation to what FTX was doing before its downfall.

Further concerns were raised after areportaccused Binance of commingling different types of assets in the same corporate wallets.

The worlds highest-volume crypto exchange exiting its own stablecoin amid heightened U.S. scrutiny has caused a lot of panic. The exchanges mass stablecoin withdrawals were shown in a recent Glassnode report.

The graph above shows that Binance Net Flow Volume for all stablecoins has recently seen larger outflows than inflows to the tune of -$295M/day, which is the largest net outflow in history.

Zooming in, BUSD lost a massive chunk in dominancecomparedto stablecoin rivals USDT and USDC. Many investors redeemed or converted BUSD into other assets, driving the total BUSD supply down by -52% to $7.7B, Glassnode added.

At the time of writing, BUSD is trading slightly under its peg at $0.9996. BeInCrypto reached out to Binances team for comment but hasnt received a reply.

One crypto analyst,Adam Cochran, told BeInCrypto:

I dont think Binance is anywhere near as bad as FTX in terms of brazen misuse of funds or having like $0 backing. But I also dont think its 1:1 and safe, and I wouldnt assume BUSD to be $1 when its sitting on an exchange or on BSC.

Can the situation really go from bad to worse, given the uncertainty around stablecoins?

Binance, directly or indirectly, was forced to cut BUSD supply amid regulatory chaos. U.S. regulators have been taking a closer look at centralized stablecoins like BUSD. In fact, the U.S. Treasury Department proposed new rules requiring stablecoin issuers to maintain reserves of the underlying assets backing their coins. They must also provide regular reports on those reserves to regulators.

The main concern is that stablecoins could risk financial stability if assets of sufficient quality and liquidity do not adequately back them. Regulators worry that if a stablecoin issuer were to experience financial difficulties, it could trigger a run on the stablecoin and cause widespread market disruption.

In response to these concerns, Congress isworkingon a bill that could make stablecoins depegs a thing of the past. The McWaters Bill aims to incorporate three key points: Mitigating the risk of future depegs, making sure stablecoins are NOT classified as securities, and wresting stablecoin regulation from the SEC.

Overall, the bill could inject much-needed clarity for stablecoins.

Following the Trust Project guidelines, this feature article presents opinions and perspectives from industry experts or individuals. BeInCrypto is dedicated to transparent reporting, but the views expressed in this article do not necessarily reflect those of BeInCrypto or its staff. Readers should verify information independently and consult with a professional before making decisions based on this content.

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Binance Faces Backlash Over BUSD Operations Amid Scrutiny - BeInCrypto

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IgorIgorevich/iStock Editorial via Getty Images

It seems like each week in 2023 has provided a fresh set of bombs lobbed at the cryptocurrency industry from US regulators, and this week was no different. A new battlefront has emerged, and this one involves Binance (BNB-USD), the company's founder Changpeng "CZ" Zhao, and the Commodity and Futures Trade Commission. On Monday, the CFTC sued Binance and claimed eight infractions according to the Commodity Exchange Act:

The lawsuit, filed in federal court in Chicago, Illinois, alleged that Binance, the world's largest crypto exchange, solicited U.S. users via unregistered crypto derivatives offerings despite having no authority to conduct business in the country.

The lawsuit alleges Binance employees nudged US users to utilize VPN services to obfuscate location to enable usage of Binance's off-shore full site rather than the more slimmed-down US front-end application. Binance is the top global crypto exchange by trade volume and also offers DeFi optionality through its Binance Smart Chain, the native token of which is BNB. The BNB token is different from Binance USD (BUSD-USD), which I've covered for Seeking Alpha in the past.

Unlike the FTX (FTT-USD) situation from November, we don't have a leak of Binance's internal balance sheet. Because of that, it's difficult (if not impossible) to assess what the solvency situation is for Binance as an exchange from the outside looking in. The Wall Street Journal recently reported over $2 billion in Ethereum-based (ETH-USD) outflows in response to the CFTC lawsuit. The overwhelming majority of that outflow has been in the stablecoins. And it's really just a continuation of what we've been seeing for months already:

Binance Exchange Balance (Dune Analytics/KARTOD)

On November 10th, Binance had a total stablecoin reserve balance of $26.2 billion. This would have been during the time the FTX drama really started to intensify. Since then, stables on Binance have fallen 60% down to $10.5 billion as of Thursday.

Source: Dune Analytics/KARTOD

While BUSD has certainly been a part of that outflow, as a percentage of total funds pre-CFTC allegations, BUSD actually hasn't been leaving Binance exchange as much as other stables have over the last week.

BUSD Circulating MC (CoinMarketCap)

However, it's also important to note that BUSD is issued by Paxos Trust. So even though there has been a significant spike in BUSD redemptions over the last several weeks, it is a different entity that is handling those redemptions. So far, there hasn't been any break in the BUSD peg like we witnessed in USDC earlier this month. But I will reiterate that I don't personally advocate holding any of these centrally issued fiat-collateralized stablecoins if you're even slightly worried about third-party risk.

Rank

Exchange

BTC Balance

24H Change

7D Change

30D Change

Binance

540,759.59

+4,178.59

+1,787.00

+12,570.72

Coinbase (COIN)

488,019.53

-146.46

+3,522.01

-2,507.28

Bitfinex

347,975.65

-4,836.59

-5,524.48

+2,919.40

OKX

123,169.65

-437.15

-1,585.94

-3,267.16

Gemini

107,892.06

-2,858.53

-17,359.23

-21,910.26

Source: Coinglass, as of 3/31

Despite the outflow in Ethereum-based stablecoins, Binance has actually seen Bitcoin (BTC-USD) inflow over the last week. Which is not typical compared to other centralized crypto exchanges.

Aside from the fact that FTX customer funds made their way to Alameda Research balance sheets, what made FTT such an important instrument in the demise of both Alameda and FTX was that it was so tantamount to Alameda's solvency. This isn't explicitly the case with Binance because BNB is a much smaller portion of Binance's known wallet holdings according to this Nansen proof of reserves balance sheet:

Binance Balance Allocation (Nansen)

Just 5.3% of the $65 billion in known Binance-controlled wallets are made up of BNB, according to Nansen. This would seem to indicate BNB will not be as detrimental to Binance solvency if the CFTC lawsuit somehow leads to a dramatic BNB token price decline. Importantly, Binance's proof of reserves shows a BNB position only totaling about 10% of the BNB in circulation.

However, utilizing on-chain wallet tracking it has been estimated by independent analysts that Binance actually controls far more BNB than its proof of reserves here indicates; possibly as much as 80% of BNB's circulating supply is under Binance control either directly or indirectly through employee holdings. Furthermore, we don't have the full scope on Binance's financial position because we only know what Binance's claimed assets are, we don't have clarity on the liabilities. That's a huge missing piece. And Binance's BNB position could be dramatically understated, according to chain sleuths.

There is a market expectation that Binance will settle with CFTC and pay a fine. It remains to be seen if that will happen and if so how big the settlement would be. But Binance could be in a tough position if this situation drags out for a long time. From where I sit, Binance does not have a reputation for being a leader in transparency and the blockchain itself is generally one of the more centralized chains in crypto by total validators. As investors, we can only make assessments based off what we know and what we can reasonably assume. Personally, I think the risk probably outweighs the reward in BNB.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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Binance: Could CFTC Lead To Bigger Problems? (Cryptocurrency ... - Seeking Alpha

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Coinbase Global stock slipped amid declines across digital assets Tuesday, but the shares have still shown some resilience despite continued regulatory pressure on the crypto industry.

While Coinbase (ticker: COIN) stock often moves in step with digital asset prices, shares in the crypto broker had gained as much as 2% on Tuesday, initially holding up amid a broader downturn. The shares, however, fell 0.6% in afternoon trading as Bitcoin also shed 0.6%. The S&P 500 was down 0.5%, in comparison.

Fears gripped the crypto landscape after the Commodity Futures Trading Commission filed a suit against Binance on Monday. The commission alleged that the worlds largest crypto exchange violated rules requiring futures and other derivatives to be traded on regulated platforms. Binance said it was disappointed by the suit and that it would continue to collaborate with regulators in the U.S. and around the world.

Overall, Coinbase stocks resilience, and outperformance, in the face of these pressures is noteworthy. The shares are still up more than 75% so far this year, even though the stock dropped sharply last week after the company disclosed looming SEC charges. Bitcoin is lagging behind Coinbase shares, with the cryptocurrency gaining 64%, according to Dow Jones Market Data. The S&P 500 has only risen 3% in 2023.

But any gains in Coinbase stock arent as simple as investors bidding up the shares because of pressures on a rival.

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Coinbase and Binance are both crypto exchanges, but the former offers mostly straightforward buying and selling of digital assets, largely focusing on U.S. retail investors. Binance is based offshore, and is home to the worlds most liquid Bitcoin futures market, which is the largest market in all of crypto trading.

Pressures on Binance dont necessarily benefit Coinbase. In fact, CFTC scrutiny on Binance only underscores just how much U.S. regulators are cracking down on crypto companies at large. It was only last week that Coinbase said it was expecting charges from the Securities and Exchange Commission. Overall, the pattern of charges spreading to other companies isnt a positive for Coinbase.

The case against Binancewhich focuses on derivativesalso bodes ill for Coinbase, which has been pushing to diversify its business away from core crypto trading operations to include more subscription- and service-based revenue. Part of this diversification has included Coinbase dipping its toes into derivatives.

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However, investors are still upbeat about crypto, with Bitcoin and Coinbase stock alike rallying amid expectations that the Federal Reserve will be more accommodative on monetary policy. Traders are hoping that the era of high interest rates may soon end, which could mark a return to the looser financial conditions that sent Bitcoin on its last bull run in 2020.

And for Coinbase stock, regulatory headwinds generally seem to be falling to the waysideat least for now.

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

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Coinbase Stock Has Held Up Amid the Regulatory Crackdown on Crypto, Binance - Barron's

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Analysis of exchange stablecoin holdings reveals that Binance, a major player in the crypto ecosystem, is slowly shifting its stablecoin allegiances. Tether USD (USDT) remains the undisputed leader among stablecoins, but things could be about to change in the coming days.

Read more:The lawsuit against Binance highlights cryptocurrency infrastructure risks

Increasingly regulatory oversight has caused the cryptocurrency market to get extremely volatile. The stablecoin ecosystem has, in particular, witnessed the most drastic shift in paradigm after the United States Securities and Exchange Commission (SEC) targeted two major US stablecoin issuers - Paxos issuing Binance USD (BUSD) and Circle issuing USD Coin (USDC).

Since the SECs intervention, the stablecoins market capitalizations have plummeted drastically. Exchanges connected to the aforementioned stablecoins have had to make some changes to the way they operate.

According to data provider Nansen, the top three exchanges based on stablecoin balances include Binance, OKX and ByBit, holding $11.30 billion, $3.64 billion and $0.98 billion, respectively.

Clearly, Binance is the winner in terms of stablecoin holdings, and that is a given, considering the platforms popularity. All the exchanges seem to have USDT as their top stablecoin, again, this is obvious considering that it is the crowd-favorite despite the allegations and lawsuits.

As seen in the chart below, Binance, which currently has $2.45 billion in USDT tokens, is not the top holder of Tether but the Seychelles-based OKX exchange, which has $3.42 billion in its coffers.

Top exchanges tether (USDT) holdings

Looking at the second largest holdings, investors can note that Dai (DAI) is the crowd favorite. Binance is yet again the largest holder of DAI, followed by OKX and ByBit.

The third largest holding is Circles USDC due to its recent run-in with the SEC.

Exchanges stablecoin holdings breakdown

Binance CEO Changepeng CZ Zhao has been accused of many things, including the collapse of the US-based FTX exchange, which was a huge supporter of Tether. Although Binance has not openly supported USDT or its parent companies, it has had massive holdings of the stablecoin due to its popularity.

In September 2022, Binance held nearly $5 billion worth of USDT. But since then, it has reduced its exposure to the stablecoin, instead focussing its efforts instead on promoting BUSD with zero-fee trading.

As Binance extended this program to other trading pairs on July 8, 2022, its market share increased rapidly from 50% to 72%, according to Kaiko research analyst Riyad Carey. However, one of the worlds largest exchanges announced on March 22, 2023, that it would halt the zero-fee trading promotion since the promotion has not helped stem its loss in market share from a peak of 70% to 58%.

There are two reasons why Binances share of USDT has decreased

Heres a comparison of its stablecoin holdings between September 2022 and March 2023.

Binance stablecoin holdings % change

Starting mid-March 2023, Binance has started promoting the utilization of TUSD on its platform via new features like listings, swaps and loans.

The latest announcement from Binance notes the addition of multiple altcoin pairs and also encourages market makers via its zero maker fees policy.

It is highly unlikely that Tether will fall out of the stablecoin race after being at the helm for such a long time. Why? As Binance reduces its USDT holdings, OKX is stepping in to replace Binance. In fact, OKX is the largest centralized exchange holder of USDT.

Apart from the regulatory concern, there is no reason for Binance to completely reject the most popular base pair for cryptocurrency trading. The exchange could reduce the exposure to USDT while it builds up its TUSD coffers, but as mentioned earlier, it will not abandon Tether.

The only scenario in which that would occur is if the regulators nail Tether down in a lawsuit. This could prompt Binance and other exchanges to do the same.

Exchange stablecoin holdings breakdown

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Analyzing exchange stablecoin holdings: Will Tether (USDT) lose relevance as Binance favors True USD (TUSD)? - FXStreet

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