Paxos has been ordered by New York regulators to stop issuing the Binance USD (BUSD) stablecoin.
Yakub Pazhytsky | Nurphoto | Getty Images
Digital currency markets are on edge after a series of aggressive regulatory measures from the US authorities over the past few days.
Bitcoin was slightly higher at $21,826.68 around 05:31 AM. ET, according to CoinDesk.
Investors are digesting a slew of major regulations in the US as authorities seek to rein in the once-robust cryptocurrency industry.
On Monday, the New York State Department of Financial Services ordered Paxos to stop minting new Binance USD or BUSD stablecoins. A stablecoin is a type of digital currency that is tied to real assets. The BUSD is pegged to the US dollar. Paxos problems BUSDthe third largest cryptocurrency pegged to the dollar.
Stablecoins are often backed by real-world backing assets such as bonds and cash. They are used to trade in and out of various cryptocurrencies as the trader does not need to convert money back to fiat currencies.
The BUSD remained relatively stable and close to the $1 peg following the New York regulator’s orders. Paxos said that BUSD will be exchangeable until at least February 2024. People can redeem funds in USD or convert BUSD into Paxos own stablecoin called Pax Dollar (USDP).
Paxos confirmed that the Securities and Exchange Commission said the agency could recommend an action alleging that BUSD is a security and that Paxos was required to register a token offering under federal securities law.
The market is waiting to see what exactly the SEC spends on Paxos, and whether it could have implications for other stablecoins such as USD coin (USDC) and bring (USDT). There are currently no official SEC actions against Paxos.
Last week, cryptocurrency exchange Kraken settled with the SEC over allegations that it sold unregistered securities.
US regulatory action has tightened some sectors of the cryptocurrency industry after a year of turmoil that wiped nearly $1.4 trillion from the market, as well as bankruptcies, project failures and companies capped by the collapse of major exchange FTX.
Vijay Ayar, vice president of corporate and international development at crypto exchange Luno, said that a major collapse in the coin’s price after last year’s huge sell-off may not happen.
“The market seems to be taking the news pretty well, and the sentiment remains cautiously optimistic given that we’ve seen most of the selling in the market over the past year,” Aiyar told CNBC on Tuesday.
Investors are waiting to see what happens next on the regulatory front.
“We’re seeing a lot of focus in various crypto sectors in the US, with staking and stablecoins being the two most recent areas. This is a clear consequence of the effects of FTX, Luna and the general crypto contagion of the past year,” Aiyar said.
“Markets may take some time to consolidate here, wait and see if there are further developments that come in the form of regulatory crackdowns, so we could see a couple of weeks of sideways action.”
– CNBC’s Rohan Goswami contributed to this report.
