Crypto – Many believe that the fall of the Bitcoin trading website FTX in November was what triggered the “Lehman moment.”
When a firm’s issues become universal, it is said to be going through a Lehman moment.
The collapse of Lehman Brothers in 2008, whose insolvency also generated issues for the entire world, is mentioned.
On the other hand, it might be argued that the collapse of FTX spread across the cryptocurrency sector.
The public outcry provided regulators who were hesitant to intervene with a more clear goal and a more convincing explanation.
Since then, it seems the cryptocurrency industry is abiding by the guidelines outlined by the Dodd-Frank Act, which may have the effect of putting a stop to additional risk-taking in an effort to lessen potential financial risks.
Since the creation of cryptocurrencies, the industry has developed and increased in size, reaching a value of billions of dollars.
The market is controlled by an untrained regulatory apparatus, and many people doubt that cryptocurrencies will ever completely replace traditional financial products.
State and federal governments have stepped up their rhetoric and management of the burgeoning business after the FTX collapse.
Major crypto corporations, however, are not very enthusiastic about the projects.
The Senate Committee on Banking, Housing, and Urban Affairs met on Tuesday to discuss the requirement for additional financial protections.
Sherrod Brown, the committee’s chairman, opened the meeting by saying:
“While crypto contagion didn’t infect the broader financial system, we saw glimpses of the damage it could have done if crypto migrated into the banking system.”
“These crypto catastrophes have exposed what many of us already knew: digital assets – cryptocurrencies, stablecoins, and investment tokens – are speculative products run by reckless companies that put Amercians’ hard-earned money at risk.”
The hearing was called when the chief financial regulator in New York demanded that Paxos stop minting a sizable stablecoin.
Due to demand, the crypto space is now significantly more restricted.
Digital currencies known as stablecoins maintain a 1:1 backing from fiat money.
According to Paxos, which made the announcement on Monday, the New York State Department of Financial Services has been instructed to stop producing BUSD, a stablecoin linked to Binance.
According to New York officials, the injunction is the result of unsolved problems with Paxos’ control over its collaboration with the Bitcoin exchange.
Read also: Oil companies report massive revenues for 2022
According to the company, the stablecoin will stop being produced on February 21.
Customers can redeem their stablecoins up until February 2024, and the BUSD circulation will be backed 1:1 by US dollar reserves.
They may also choose to exchange their money for US dollars or for Pax Dollar, another stablecoin that the firm issues.
The firm also announced that it will no longer work with Binance.
BUSD should have registered with the Securities and Exchange Commission in accordance with federal securities regulations, and the SEC plans to file charges against Paxos.
Paxos said in a statement on Monday that it “categorically disagrees” with the notion and argues that the BUSD does not meet the requirements to be considered a security under federal securities laws.
The company says it is prepared to discuss the problem with the SEC and that, if required, it will “vigorously litigate.”
Investors are anxious because of the BUSD decision.
In 2019, Binance and Paxos came to an agreement to introduce the stablecoin.
The trading market for Bitcoin had one of its worst days on Monday.
Data source Nansen estimates that withdrawals from Binance resulted in net outflows of $873 million.
The most recent instance of numbers expressing their dominance recently is the BUSD crackdown.
Since many proponents of cryptocurrencies have long sought for regulatory clarification, its actions produce confusion and anger within the cryptocurrency ecosystem.
Market analyst for GlobalBlock Marcus Sotiriou kept a close eye on everything.
“Regulation by enforcement is puzzling for crypto enthusiasts,” he pointed out.
“People are desperately trying to figure out how to offer a product legally whilst getting zero guidance.”
Recent whack-a-mole enforcement tactics used by the SEC have drawn criticism for unfairly focusing on the fledgling firm.
For instance, the SEC and the Bitcoin exchange Kraken reached a $30 million settlement, which forced the business to stop using staking.
Investors may earn a passive income on their crypto holdings by forgoing the staking strategy.
Concerns about using staking services for concurrent exchanges were expressed in the resolution.
Staking is seen by cryptocurrency aficionados to be crucial for maintaining the constant interaction of many currencies.
Earlier in January, regulators alerted US banks to a number of hazards the crypto market poses, including:
- Shoddy risk management
“It is important that risks related to the crypto-asset sector that cannot be mitigated or controlled do not migrate to the banking system,” said the regulators.
Image source: Penn Today