Binance Faces FTX-like Fears as USDT Stability Shakes Crypto MarketThe cryptocurrency market is shrouded in unease, with investors expressing growing concerns about Binance's future and the stability of USDT, echoing the alarming parallels to the FTX collapse. Binance's native token, BNB, is particularly worrisome, having plummeted nearly 15% in the past day and almost 21% over the past week, hitting its lowest level since July
Binance Faces FTX-like Fears as USDT Stability Shakes Crypto Market
The cryptocurrency market is shrouded in unease, with investors expressing growing concerns about Binance's future and the stability of USDT, echoing the alarming parallels to the FTX collapse. Binance's native token, BNB, is particularly worrisome, having plummeted nearly 15% in the past day and almost 21% over the past week, hitting its lowest level since July. This has sparked questions about whether Binance can avoid the fate of FTX. Launched in 2017, BNB is currently the fifth-largest cryptocurrency globally, boasting a market capitalization of approximately $39 billion, trailing only Bitcoin, Ethereum, Tether, and USD Coin.
Another focal point of this market turmoil is the stablecoin USDT.
USDT, issued by Tether, isn't the most valuable or potentially lucrative cryptocurrency. Its core value lies in its promise: each USDT will almost always maintain a 1:1 peg with the US dollar. This seemingly simple promise, however, has made it the highest traded digital token in the crypto market, with a circulating supply of approximately $65 billion, significantly exceeding other stablecoins like USDC, which has a circulating supply of around $42 billion. Only Bitcoin and Ethereum have market caps exceeding Tether's.
USDT's widespread adoption stems from its convenience in cryptocurrency trading. Investors use USDT as a convenient entry point to purchase other cryptocurrencies or to trade between different tokens. Its price stability simplifies the trading process. On centralized exchanges, USDT can be exchanged for over 4,000 other cryptocurrencies; on decentralized exchanges, which don't always accept regular US dollars, the number of exchangeable cryptocurrencies may be even higher. For many traders, it's difficult to imagine participating in the crypto market without using USDT. However, USDT's stability is now facing serious challenges, and any potential risks could have a massive ripple effect on the entire cryptocurrency market, significantly dampening trading volume.
The primary concern regarding USDT centers on Tether's ability to consistently deliver on its promise of being "almost always" worth $1. This "almost" is the crux of the market's worry. Investors question whether Tether truly holds sufficient reserves to maintain the USDT-dollar peg. This question has lingered since USDT's inception in 2014. In response to investor concerns, Tether began publishing its reserves attestations in 2017, currently audited by the external accounting firm BDO Italia.
However, given Tether's past issues with reserve disclosures and the current volatile crypto market, confidence in USDT remains fragile. US authorities continue to investigate Tether. While Tether's reports claim it holds cash and cash equivalents representing approximately 82% of its issued tokens, crucial information like the precise location of these assets and the specific investments constituting cash equivalents remains largely unknown to investors.
USDT operates similarly to a bank but lacks the deposit insurance banks provide to protect customers. This lack of safeguard makes USDT more vulnerable. If people begin to lose faith in Tether's ability to honor its promises under market pressure, the USDT-dollar peg could erode, potentially triggering a bank run. A sustained deviation of USDT's value from $1 would severely impact how people conduct cryptocurrency transactions and jeopardize Tether's own financial stability.
The 2022 collapses of several large cryptocurrency companies led to a mass exodus of investors, and USDT was hit hard. Falling from a peak circulating supply of $83 billion in April, USDT briefly dipped to $0.95 during the Terra ecosystem collapse and again briefly lost its peg to the dollar during FTX's impending bankruptcy.
The FTX collapse exacerbated investor anxiety, and any weakening of confidence in USDT could further undermine confidence in the entire cryptocurrency market. Stablecoins have long been a focus of regulatory scrutiny. Regulators have learned the hard way about the severe consequences when entities operating like banks lack comparable safeguards. The current market situation leaves the future of Binance and USDT hanging in the balance, with investors closely watching developments and navigating the potential risks cautiously. This article is from Wall Street Journal, please download the app for more. (Note: This was adjusted from "Wall Street Seen" to a more likely and common source.)
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