Price movements for cryptocurrencies continue to be bearish as investors and businesses digest the consequences of the SEC’s accusations against Binance and Coinbase exchanges. The lawsuits have also affected decentralized finance (DeFi) markets by reducing overall liquidity, and most analysts believe more pain is on the way.
SEC center goes after stock markets
On June 5 and June 6, the United States Securities and Exchange Commission filed civil lawsuits against Binance and Coinbase, two of the largest centralized exchanges in crypto. The SEC claims that 61 different cryptocurrencies are securities, representing a value of $100 billion. One of the 61 tokens listed was Algorand. A token that Gensler called “great tech” in 2019 seems to contradict this latest enforcement action.
Other top crypto tokens specifically cited as securities include Binance USD, Binance Coin, Solana, Cardano, Polygon, Filecoin, Cosmos, The Sandbox, Decentraland, Axie Infinity, and COTI. Enforcement actions have reduced liquidity on Binance.US by 78 percent since the lawsuit. In addition to declining liquidity, the Binance exchange has seen massive balance drops in stablecoins, BTC, and Ether. Stablecoin balances have dropped over 20% since June 5th.
The news led Robinhood to delist three of the tokens the SEC had listed as securities. Robinhood has given users until June 26 to withdraw their assets or be forcibly liquidated. This means that potentially more than $2 billion could be liquidated between the three coins within 1 week. The recent SEC action adds to a long history of disagreement, misunderstanding, or mistrust regarding the actual use-case of crypto assets. After the FTX boom, some think US lawmakers are angry with the crypto industry. The latest battle centers around how centralized exchanges can use client funds.
Bitcoin price lagged behind stocks
To date, crypto prices are still highly correlated with the Dow and S&P 500, and most major banks still expect the US to experience a sharp recession at some point in 2023. This did not prevent major stock indices from reaching annual highs after the United States’ debt ceiling agreement. SEC pressure is widening the gap between stocks and Bitcoin. Crypto asset investment products have seen over $88 million outflows since the complaint.
Investor sentiment on the current state of the economy remains low, according to US Bank’s analysis of more than 1,000 data points. Terry Sandven, Chief Equity Strategist, Portfolio Manager at US Bank, said, “The increasing performance of small and medium-sized companies is remarkable. “The small-scale Russell 2000 is up 4.6% in the first two days of June, almost double the S&P 500 and the NASDAQ Composite.” Despite the increase in stocks, crypto prices do not follow this increase.
TVL and volume remain low for cryptocurrencies
The attack on centralized exchanges has also increased Bitcoin exchange inflows and outflows. Stock market entries indicate increased pressure on the sell side, while exits are specific to self-hiding assets. Despite the net-flow move to on-chain self-storage, DeFi has not witnessed growth. The locked-in total value metric (TVL) is a common way to examine the health and sentiment of crypto markets. According to DeFiLlama, TVL across all protocols has lost $120 billion in value since April 5, 2022. Due to heavy macro headwinds and low volume, according to some experts, the volatility in crypto is likely to continue for the foreseeable future.
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