Is USDC the next Stablecoin to crack under the weight of regulatory pressure?

• USDC almost falls victim to the same FUD (fear, uncertainty, and doubt) that recently affected BUSD.
• We saw an initial surge in USDC volume on the Binance smart chain from around 12 February.

Stablecoins found themselves in the crosshairs of the latest regulatory FUD. BUSD was the most affected stablecoin in that regard and others have managed to stay unaffected. From the looks of things, USDC just came close to being the next victim and the worst may not be over.

The recent regulatory pressure forced many crypto companies to re-evaluate their strategies in the U.S. and among them is Binance, rumored to be terminating its relationships with United States-based companies including Circle, the company that issues USDC.

While the rumors have been dispelled, one can easily imagine how such an outcome would have locked out USDC from accessing robust volumes from the U.S. market.

CZ responded that this is false news, blockchain has no borders (difficult to tell what is a US-based token). https://t.co/c3N4X9LBCd

— Wu Blockchain (@WuBlockchain) February 17, 2023

But has the danger really passed? From a regulatory point of view, Circle, the company behind USDC is regulated and audited in the United States. This means there is a lower risk of USDC finding itself being sidelined due to regulatory pressure.

Assessing USDC volume under the latest conditions

It might be interesting to see how the current conditions in the market have so far influenced the USDC demand and volume. We did see an initial surge in USDC volume on the Binance smart chain from around 12 February before peaking on 16 February.

Source: Santiment

One of the potential reasons for this is the surge in demand for the overall crypto market, hence boosting the demand for stablecoins as trading volumes surged.

However, the USDC volumes on the BSC dropped substantially on Friday and Saturday (17 and 18 February). The main reason for this is likely the Binance FUD which affected BUSD for the most part before trickling down to USDC.

Similarities are observed with USDC volumes on the Ethereum network whose volume also peaked on 16 February before tanking in the last two days.

This confirms that there is no isolated scenario where traders are abandoning USDC in favor of other stablecoins despite FUD attempts.

Source: Santiment

The above outcome reveals that the Binance FUD did not have an impact on USDC volumes or demand. Instead, the volumes were largely driven by prevailing market conditions. In addition, USDC’s market cap has seen a pivot in the last few days.

Source: Glassnode

That being said, USDC was on an overall downward trajectory prior to the recent pivot on 13 February. This reflects well on its health despite rising concerns.