Crypto market falls below $1 trillion as US regulatory pressure mounts

The value of the cryptocurrency market fell below $1 trillion, according to data provider CoinMarketCap, as US regulators step up what appears to be an offensive against the industry.

BitcoinBTC
was listed at $21,482 shortly after 1:00 PM in New York, down 1.4% over the past 24 hours. Ether is at $1,476, down 4.3%. Binance coinGDP
the fourth largest cryptocurrency has fallen 11.6% to $286, as regulators target the exchange’s stablecoin, Binance USD BUSD
. The latter token is trading just below the $1 peg it is meant to maintain.

Overall, around $996 billion worth of cryptocurrencies are traded after peaking earlier this month at just under $1.1 trillion. While still up from last year’s lows below $800 billion, the market remains a long way from its 2021 peak of nearly $3 trillion.

Last week, the US Securities and Exchange Commission forced the Kraken exchange out of the business of providing interest to US retail investors who borrow the cryptocurrency, a process known as staking. The SEC suggested that investment products in which owners relinquish control of their assets to exchanges constitute a securities offering, which should be registered and meet disclosure standards.

“Crypto is weakening as all traders worry about how destructive this SEC wave will be with the crackdown on staking products and stablecoins. The news flow has been quite bearish for crypto and you can’t forget tomorrow’s inflation report which could be hot and cause trouble for risky assets, Edward Moya, senior analyst at trading firm OANDA, said in a Monday note. “It may be difficult for buyers to come forward until we see how Wall Street reacts with tomorrow’s inflation data,” he added.

On Monday, cryptocurrency firm Paxos announced that it will stop issuing a version of BUSD that it created in partnership with Binance, the world’s largest cryptocurrency exchange.

“Effective February 21, Paxos will cease issuing new BUSD tokens as directed by and in close coordination with the New York Department of Financial Services (NYDFS),” Paxos said in a statement, adding that it would “end the relationship to Binance for the tokenized stablecoin BUSD.”

Paxos’ BUSD product, built on EthereumETH
blockchain and backed one-to-one by US Treasuries and reverse repurchase agreements backed by these securities, are related to but separate from Binance’s self-issued BUSD. The latter is independently created by the crypto exchange on blockchains other than Ethereum and is not directly regulated by the NYDFS.

Following the announcement, traders rushed out of their BUSD positions, according to digital asset data provider Kaiko, with volume climbing to nearly half a billion dollars on the BUSD-tether trading pair in the hour immediately following the news. “The decision will have a profound impact on the stablecoin space and upend a pillar of Binance’s aggressive strategy for crypto-dominance,” Kaiko added.

The Wall Street Journal reported that the SEC plans to sue Paxos for violating investor protection laws, citing people familiar with the matter.

The agency looks set to intensify its crypto enforcement as it seeks a voice to control the industry while Congress considers legislation that would make the Commodities Futures Trading Commission the lead regulator. Last week, Kraken agreed to pay $30 million in fines and leave the betting market to settle SEC allegations that it sold unregistered securities.

Attention is now turning to similar staking services offered to US customers by exchanges such as Gemini, Binance.US and Coinbase. Despite ever-increasing questions about the latter, Cathie Woods ARK renewed her Coinbase buying round after a nearly month-long hiatus. The company revealed on Friday that it had recently purchased 162,325 Coinbase shares worth about $9.2 million at current prices. Coinbase shares are down about 1.6% today at $56.18 after trading above $80 earlier this month.

In other stock market updates, crypto-friendly bank Silvergate now ranks as the second most shorted stock on Wall Street, with over 73% of shares shorted, according to the latest Short Interest Report, published on February 9. The bank’s stock lost about 60% in the past three months. The bearish sentiment stems from the disappointing fourth-quarter earnings report, in which Silvergate revealed a loss of nearly $1 billion, and the reported US Department of Justice investigation into the relationship with Sam Bankman-Fried’s firms FTX and Alameda Research.

Silvergate shares fell about 4.5% today to $14.305. It closed at nearly $21 earlier this month.