Binance, a Cryptocurrency Exchange, is Losing Investors. It All Comes Down to Regulation.

As the digital asset market faces more regulatory scrutiny, investors appear to be reducing their exposure to Binance, the world’s largest cryptocurrency exchange, with customers withdrawing money and a token related to the business falling.

Binance has a growing number of issues resulting from its ties to the U.S. financial system. Paxos, a financial technology business based in the United States that issues Binance USD, Binance’s dollar-pegged stablecoin, said on Monday that it would discontinue its connection with the exchange following an order from the New York State Department of Financial Services to stop producing BUSD.

Paxos will not create new BUSD tokens, essentially limiting the stable token’s ability to grow and casting doubt on its future. Binance has stated that since Paxos manages the token, its market capitalization will only decrease over time.

“The decision will have a profound impact on the stablecoin space and upend a pillar of Binance’s aggressive strategy for crypto dominance,” a team of analysts led by Clara Medalie at crypto data provider Kaiko wrote in a note. “Immediately after the news broke, BUSD began trading at a discount to USDT.”

Tether, the largest U.S. dollar stablecoin, is referred to as USDT. BUSD trading at a discount to its larger rival indicates that traders are switching from one to the other.

Storm clouds are forming over the digital asset business, with regulators and politicians increasing their scrutiny in the aftermath of crypto exchange FTX’s collapse in November amid fraud charges.

The SEC initiated action last week against Kraken’s staking services, which reward investors a return on tokens such as Ether, putting a similar firm from Coinbase Global in focus.

Binance is not immune to industry pressure. In January, Binance announced that its U.S. banking partner, Signature Bank, would no longer serve cryptocurrency users who buy or sell amounts of less than $100,000, and last week the world’s largest crypto exchange suspended all U.S. dollar transactions.

According to Andrew Thurman, an analyst at cryptocurrency analytics firm Nansen, all of this seems to be affecting attitudes toward Binance, as the exchange was facing significant withdrawals as of late Monday. Nansen claims that a significant portion of those transactions involved BUSD, with $1 billion worth of stablecoin outflows accounting for more than 6% of the exchange’s reserves and more than $140 million quickly redeemed with Paxos for dollars.

Negative sentiment has also found its way into Binance Coin (BNB), a cryptocurrency issued by Binance that can be used for various goals on the exchange, including as collateral for trading loans. BNB fell by up to 10% on Monday, behind Bitcoin and other cryptocurrencies. Binance did not reply quickly to a request for comment for these situations.