Crypto Week: BUSD Banned with Staking in Mind?

The U.S. Securities and Exchange Commission (SEC) may ban crypto staking for retail investors, according to rumours heard by Coinbase co-founder and CEO Brian Armstrong. He also said that such a ban would be ineffective and trigger companies to move offshore where there are minimum regulations. This move would lower investor protection, something that came to light with the infamous FTX crypto exchange. Armstrong said it is better to establish proper regulations in the market and this should be discussed with the participants.

More troubling news has recently surfaced about a lawsuit from the U.S. Securities and Exchange Commission (SEC) to Paxos Trust, the issuer of Binance stablecoin, for violating investor protection laws. The underlying reason for the lawsuit is quite strange as SEC accused Paxos of issuing unregistered security. In order to define an asset as a security the Howey Test is applied with criteria of profit expectations. However, Paxos categorically disagrees with the SEC staff because BUSD is not a security under federal securities laws. The BUSD is pegged to the U.S. Dollar as one to one, and there are serious doubts as to whether anyone expects to gain any profits by just owning such an asset. So, the SEC investigation is seen unjustified and unfair with unfounded accusations.

This regulatory raid by the SEC promoted rumours that this was a response to Binance CEO Changpeng “CZ” Zhao role in investigating the FTX crypto exchange fraud. However, Paxon is one of  Binance’s partners and the exchange has 20% of its reserves in BUSD. Considering all the facts, a more viable reason for the lawsuit is that the SEC is willing to establish strict regulations to the sector to prevent another FTX case from happening. Binance plans to continue supporting its Binance USD despite its issuer, Paxos, being ordered to stop minting the stablecoin by the U.S. SEC and New York regulators. Binance may alter its operation rules in case of serious capital outflows to other stablecoins, including a possible disabling of BUSD as an exchange underlying stablecoin. The New York Department of Financial Services (NYDFS) has ordered Paxos to cease issuing dollar-pegged BUSD. This will eventually lower BUSD market cap.

The overall market situation is still in favour of risky assets. The recent rally in the markets was inspired by rising balance sheets of central banks. City Group has estimated that the actions of the Bank of Japan to control the debt yield curve and efforts of the European Central Bank to lower reverse repo operations added $1 trillion to the global balance sheet over the last four months. However, the pressure on risky assets will soon be restored as central banks continue their monetary tightening actions. The Federal Reserve is trying to secure a soft landing for the American economy while cautiously hiking interest rates. So, any break in this cycle may be seen as logical as interest rates seem to be quite appropriate for the moment. Any quantitative easing could be discussed only if the economy signals to serious troubles that are not visible right now despite some tensions. With this in mind, BTS has high chances of dropping to $17,000 in the short-term perspective.