Binance’s regulatory woes don’t seem to be scaring crypto investors
The Commodities Futures Trading Commission (CFTC) filing against Binance represented the culmination of increased regulatory pressure on the crypto industry.
On March 27, the CFTC sued the company, its CEO Changpeng Zhao (CZ) and its chief compliance officer Samuel Lim for violating US commodity regulations. day low of $26,500.
In the immediate aftermath of the submission, there was a concrete fear of infection. When Paxos faced a Wells notice for the issuance of BUSD, the exchange was already on thin ice with regulators. A bombshell report by the FT pushed the exchange further, alleging it lied about its ties to China.
Fears of a broader market downturn were largely unfounded. Bitcoin cracked $28,000 the day after the filing, recouping losses from the previous day and creating solid support.
However, increasing outflows from Binance worried analysts, as many saw it as a sign that the exchange was losing its footing in the market.
A recent report from Glassnode took a deep dive into net coin flows through the exchange, and found that Binance saw the largest net outflow of stablecoins in history at the end of March.
This is in line with the overall decline in the USD value of Binance’s reserves, which fell by 45% since the collapse of FTX in November 2022.
The report also notes that there has been a significant outflow of BUSD from Binance. This is in line with CryptoSlate’s previous analysis, which found that around $14 billion worth of BUSD left exchanges since November 2022.
BUSD outflows caused Bitcoin trading volume on Binance to drop 13%, hitting the lowest level in over 8 months.
Further Glassnode research found that the decline in stablecoin balances has not affected Bitcoin. Analyzing the coin-denominated balances of BTC shows that Bitcoin reserves on Binance increased by 67,930 BTC since the beginning of the year. On the other hand, the ETH reserves on the exchange have remained largely flat.
“Despite the developing friction between Binance and regulators, the platform appears to be primarily experiencing a stablecoin shuffle, and remains the largest centralized exchange in the market,” the report concluded.
The massive stablecoin outflows are a direct result of the ongoing banking crisis in the US. The domino effect that began with the collapse of Silicon Valley Bank erased a good deal of investor confidence in stablecoins. In early March, nine of the top 10 stablecoins by market capitalization traded below the peg, exposing the fragility of the asset class that led traders to seek stability in Bitcoin.
Despite its declining stablecoin balances, Binance remains the largest centralized exchange on the market. An increasing BTC balance on the exchange further confirms this trend, showing that investors prefer the highly liquid market to distribute their newly acquired BTC.
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