Cryptocurrency crises have continued this year; For many simultaneous reasons, both linked to the currencies themselves and to the effect of the tendency of many countries to adopt regulations and laws governing them, but also linked to the economic evolution taking place in the world. and the repercussions of monetary policy tightening (the sum of the measures that central banks follow to reduce the demand for money and curb inflation) and the recourse of central banks to increase the price of money, interest, and other relevant factors.
Binance, the world’s largest digital currency exchange, has carved out the lion’s share of volume declines in recent months, in light of these factors, and with its exposure to widespread shocks in the US and the light of the tightening of controls on this, alongside the actions taken by New York regulators and the Commodity Futures Trading Commission, and which has placed the platform – which is currently moving towards reducing the number of its employees – facing a a number of challenges articulated, amid growing concerns from dealers.
Decline of momentum
Analysts believe that cryptocurrencies have largely lost momentum and have begun to lose the confidence of many dealers, given the risks that follow them, which heralds further declines in values ​​and trading volumes in this market.
In this context, a report recently published by the British newspaper “Financial Times” shed light on the most prominent stations of the crisis in the face of the largest cryptocurrency exchange.
Binance has lost a quarter of its market share in the past three months as a US watchdog sues it for allegedly violating federal laws. The group, which says it has no head office, controlled 57.5% of the average monthly volume on cryptocurrency exchanges globally at its peak in February. But that’s now down to 43%, according to CCData. The sharp drop came as Binance faced stiffer trading competition and increased scrutiny of its business from US regulators.
Cryptocurrency crisis
In this context, VI Markets CEO Ahmed Moati said in exclusive statements to “Sky News Arabia Economy” that all eyes are particularly on Binance, especially after the failure of “FTX”, and while Binance is currently considered to be one of the biggest platforms in where is the cryptocurrency market cap, especially with their massive overseas expansions.
He points to a group of main factors that have contributed to the declines recorded by “Binance”, the most important of which is the restrictions it faces in many countries, pointing out that Australia a few weeks ago canceled the license of ” Binance” for derivatives trading in the country after reviewing the group’s local operations.
And he adds: The decline recorded by “Binance” is not only related to the question of laws and while a US watchdog is suing it because of its alleged violation of federal laws, but also related to the general situation. cryptocurrencies, which are witnessing steep declines, after their value approached $3 trillion, it recently hit within the limits of $1.150 billion.
This is corroborated by the Financial Times report, which notes that after several years of strong growth, many cryptocurrency companies were forced to pull back by the industry downturn last year, the value of tokens such that bitcoin having fallen nearly 70%, and several big names knocking it down.
The market value of cryptocurrencies has grown from around $2.2 trillion at the start of 2022 to around $800 billion by the end of it, according to data from CoinDesk, as bitcoin has been the star of this terrible drop because it lost more than 60 percent of its value.
Elon Musk
He justifies this decline which affected “Binance” and cryptocurrencies by the decline in influence of “influencers” and celebrities like Elon Musk, and his tweets on “Dogecoin”, noting that “dealers are starting to feel that with the successive bankruptcies of companies and the frauds to which some are exposed.
In a recent class action lawsuit, investors accused Tesla CEO Elon Musk of manipulating the cryptocurrency Dogecoin, costing them billions of dollars. Investors said this included the sale of a Dogecoin sensor for around $124 million in April after swapping the blue bird logo on Twitter for a Shiba Inu Dogecoin, resulting in a 30% increase of the price of Dogecoin. Musk bought Twitter last October.
breakthroughs
The financial and economic analyst also discusses other factors that have reinforced the turmoil around cryptocurrencies, which is leading to a drop in dealers’ confidence in them, which is linked to the “breakthroughs” witnessed by these platforms, and which sends a message that “this domain is no longer safe”… and so. The decline in investor confidence had a direct impact on the market value and its decline significantly, according to Maati.
According to data published by blockchain Chainalysis, the year 2022 saw 6 of the 10 biggest hacks in cryptocurrency history, bringing the total value of resulting losses in the aforementioned year to around 1.6. billion dollars.
And on the future expectations of “Binance” in the context of this data, the CEO of VI Markets believes that cryptocurrencies in general will lead to further declines in the coming period, especially since it is clear that the United States of America and the group of European Union countries are stepping up their efforts to legalize the conditions of these companies.
And he continues: “Regulation and reconciliation of conditions harms cryptocurrencies and does not benefit them, and this is one of the reasons for their decline, since they are mainly based on the idea of ​​​​financial freedom. and decentralization, and therefore try to put them in an organized framework under the eyes of governments in the face of money laundering, arms smuggling and everything related to operations on The Dark Web, it would greatly harm him.
Binance suffered a major blow in February, when the New York Department of Financial Services ordered Paxos, which runs the platform’s BUSD stablecoin, to shut down the coin, which accounted for almost 40% of Binance’s monthly trading volume. the platform. And last March, the US Commodity Futures Trading Commission (CFTC) sued the Binance platform and its CEO in federal court, accusing them of violating trade laws. The platform dismissed the allegations at the time. Another factor that hurt the platform and its market share was the expiration of a promotion offering free currency exchanges in a number of trading pairs (a combination of two different currencies used in the currency trading), which had fueled growth late last year, but came to an end. March, so the volume of transactions decreased.
interest rate
For his part, the eminent American economist, Jeffrey Frankel, adds another reason that has reinforced the decline of “Binance” and cryptocurrencies in general, which is related to the financial policies used to curb inflation by increasing the interest rate.
And the professor at Harvard University’s Kennedy School of Government says, in an exclusive statement to “Sky News Arabia Economy”: “I said in the year 2021 (when cryptocurrencies were experiencing a relative boom ) that these currencies were in danger of collapsing”. .. It is likely that the recent increases in interest rates, since last year, have contributed to initiating the decline of the currencies.
Regarding the procedures for legalizing cryptocurrency platforms, he says, “My point is that cryptocurrencies ultimately don’t serve many functions…except maybe to evade the law!”
While Binance’s grip on the market has diminished, other exchanges – including OKX, BitMex, Bybit and Bullish – have been increasing their market shares since March. Binance’s market share decline comes as it plans a series of job cuts. Binance was founded in 2017 and has grown from a team of 30 to over 8,000 employees.
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