RAPID STABLECOIN REDEMPTION

Last week, the cryptocurrency markets experience little downside and the cause of the downtrend was based on the uncertainty around inflation and crypto regulation. Also, the data from the block let us know that the liquidation of long positions by the traders further contributed to the high sell pressure the crypto market saw last week. The uncertainty around inflation initial start in the last two weeks when the CPI data and PPI data came in more than what a lot of people were expecting. This was big deal because many investors were sure that inflation will continue to drop. It is no longer news that the FED was raising interest rates to battle inflation and this raising interest rate has been pulling money out of many different assets because a lot of people will have to pay the more expensive debt. The good news here is that the Consumer Price Index data and PPI data are still coming down, it's just that it slower than before. The bad news here is that the Federal Reserve's most like index went positive in January because the PCE data rose.

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This is a problem because it let us know that inflation in the United States will not be dropping anytime soon. It is possible that the United States might experience a second wave of inflation despite all the interest rate hikes that we have been seeing. The Federal Reserve warned about volatility in the cryptocurrency market. Also, the FED, FTIC, and OTC put out similar warnings about the volatility in the crypto market in early January. In the week that follows, we the United States banks stayed away from the cryptocurrency world and we saw the SEC starting to go after crypto. The difference is that the FED, FTIC, and OTC only talked about if they were run on stablecoins.

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You should know that most stablecoins are backed by government debts and the Treasury which are regulated by United States financial institutions. This is how it works when you redeem your stablecoins, some of these government debts are sold by the stablecoin issuer to give us US dollars. The announcement talked about it how such deposits can be related to large and quick outflows coming from assets like stablecoin redemption. I think this sound like a kind of warning about what is about to happen which could lead to rapid stablecoin redemption. The interesting about it is that the only thing that makes this happen is the crackdown on stablecoins by US regulators.

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The recent announcement by the US regulators could likely be the reason why we see billions of dollars worth of BUSD being withdrawn from the Binance exchange platform. You should know that the BUSD is not out to the market yet it's just that it was reviewed by the SEC and want to sue PAXOS because they claim BUSD is a security.

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