In the cryptocurrency market, stablecoins represent tokens whose value is firmly pegged to that of the US dollar – an extremely useful feature in such a volatile industry. In bull markets, the market capitalization of stablecoins tends to decline, as investors shift their funds to more volatile and riskier assets; on the contrary, in bear markets, investors seek refuge in stablecoins with low volatility, thus causing their market cap to soar.
Today, the total market capitalization of stablecoins such as Tether (USDT), USD Coin (USDC), Binance USD (BUSD), and Dai (DAI) is over $131 billion.
Stablecoins are crucial for the future of cryptocurrencies: it is for this reason that Moody’s, a well-known analytical agency, is developing a scoring system to reduce the fear and distrust that some investors place towards these assets. The most common fear is the lack of transparency: this uncertainty has caused the collapse in the last few weeks of the BUSD market cap.
Let’s take a closer look at the factors that are negatively impacting the Binance stablecoin.
BUSD’s market cap takes a hit
On September 30, 2022, the BUSD market cap rallied sharply; however, this increase was mostly related to Binance’s decision to forcibly swap all USDC on the exchange for its own stablecoin than to a greater interest of the users. The firm automatically converted as much as $3 billion from USDC to BUSD; since then, the market cap of the Binance stablecoin has been in free fall.
BUSD’s market capitalization continued to decline due to issues with token management, which first surfaced in January 2023. Although Binance has denied allegations that the asset is not fully backed by cashHowever, many investors preferred to move their funds elsewhere.
According to blockchain data provider Nansen, the circulating supply of BUSD dropped to $15.4 billion on Jan. 25. It’s about a decline of one billion dollars from last week, and two billion from December 2022.
It was also recently discovered that Binance had filed”For error” users’ money and the collateral underlying the “B-Tokens” within the same wallet. The firm quickly fixed the issue, but the event still scared traders who rushed to withdraw funds from the platform.
BUSD inflows on the rise
When the price of Bitcoin (BTC) rises, as it has recently, stablecoins typically experience a decrease in inflows, as investors tend to trade these assets for other cryptocurrencies. One way to measure the demand for stablecoins is to look at inflows to exchanges.
All major stablecoins have seen declining inflows recently; this is not the case for BUSD, whose inflows have almost tripled.
Most of the BUSD is on Binance
Stablecoins experience increased demand when used in trading, paired with Bitcoin or altcoins. This use case applies to both centralized and decentralized exchanges.
A very worrying statistic of BUSD is the lack of use outside its main exchange. There are currently $13.8 billion in BUSD on Binance; the second exchange by number of BUSD held is Crypto.com, with 32.6 million dollars.
However, the main stablecoin on Crypto.com is USDC, with 582 million dollars: figures that make BUSD pale.
The lack of use cases outside of Binance and declining demand do not bode well for the BUSD market cap. These two negatives come together with a recent decision by SWIFT, which banned dollar transfers of less than $100,000 to Binance.
The future of BUSD looks far from rosy.
