Crypto Market Slips Below $1 Trillion As U.S. Regulatory Pressure Mounts

The cryptocurrency market’s value slipped below $1 trillion, according to data provider CoinMarketCap, as U.S. regulators step up what appears to be an offensive against the industry.

Bitcoin
BTC
was quoted at $21,482 just after 1 p.m. in New York, down 1.4% over the previous 24 hours. Ether is at $1,476, down 4.3%. Binance Coin
BNB
, 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, cryptocurrencies are trading at about $996 billion after peaking earlier this month at just under $1.1 trillion. While still up from last year’s lows beneath $800 billion, the market remains far from the 2021 peak of almost $3 trillion.

Last week, the U.S. Securities and Exchange Commission pushed the Kraken exchange out of the business of providing interest for U.S. retail investors who lend it cryptocurrency, a process known as staking. The SEC implied that staking products in which owners cede control of their assets to exchanges amounts to a securities offering, which ought to be registered and meet disclosure standards.

“Cryptos are weakening as every trader worries about how crippling this SEC wave will be with the cracking down on staking products and stablecoins. The news flow has been rather bearish for crypto, and you can’t forget about tomorrow’s inflation report that could be hot and spell trouble for risky assets,” said Edward Moya, senior analyst at trading firm OANDA, in a Monday note. “It might be hard for buyers to emerge until we see how Wall Street reacts with tomorrow’s inflation data,” he added.

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

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

Paxos’ BUSD product, built on the Ethereum
ETH
blockchain and backed one-to-one by U.S. Treasuries and reverse repurchase agreements backed by those securities, is 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 NYDFS.

Upon the announcement, traders rushed out of their BUSD positions, according to digital assets 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 is planning to sue Paxos for violating investor protection laws, citing people familiar with the matter.

The agency seems to be intensifying its crypto enforcement as it seeks a voice in controlling 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 penalties and exit the staking market to settle SEC charges that it sold unregistered securities.

Attention is now turning to similar staking services offered to U.S. customers from exchanges such as Gemini, Binance.US and Coinbase. Despite mounting questions about the last, Cathie Wood’s ARK renewed its Coinbase stock buying spree after a nearly month-long break. The company disclosed Friday 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 its shares shorted, according to the latest Short Interest Report, published on February 9. The bank’s stock lost roughly 60% in the past three months. The bearish sentiment stems from its disappointing Q4 earnings report, where Silvergate disclosed a nearly $1 billion loss, and the reported U.S. Department of Justice probe over its relationship with Sam Bankman-Fried’s firms FTX and Alameda Research.

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