This week's report explores the potential long-term effect on tokens implicated in SEC's recent charges, in addition to covering the feeble state of the market.
Preview
In Short
SEC's cases against Coinbase and Binance could have long-term implications for tokens implicated in the filings, as institutional investors shy the markets. At the same time, we see clear tendencies of rotation into BTC, ETH, and stablecoins.
Takeaways
BTC+ETH+Stablecoin dominance above 80%
Anemic derivatives activity in BTC
A flight to safety
Wide market rotation towards BTC and stablecoins has been a key trend from the fallout of SEC’s Binance and Coinbase charges. Bitcoin has seen flat returns over the past week after experiencing a recovery last Tuesday led by a substantial short squeeze. Prices trended lower in the following days leading to a second retest of the February high levels of $25,300. ETH mildly underperforms BTC but exhibits strength vs. the rest of the altcoin market.
BNB (-14%) has drastically underperformed BTC and ETH following a very challenging week for Binance. If the trend ensues, a major on-chain liquidation amounting to 900,000 BNB at $220 could shake the markets, leading to a burgeoning desire to short BNB, as BNB has seen its open interest grow by 42% since June 4.
This Tuesday is set to be a particularly hectic day for crypto markets. The SEC is ordered to respond to Coinbase’s rulemaking request by today, while the U.S. District Court will hold a hearing at 18:00 GMT regarding the SEC’s request for a temporary restraining order against Binance.US. Also, at 18:00 GMT, the House Financial Services Committee will hold a hearing related to clarity for the digital assets ecosystem.
Further near-term catalysts await with the Wednesday FOMC press conference. The market is currently expecting the Feds Fund Rate to remain unchanged, pricing in a 20% chance for a 25bps hike. Tuesday’s CPI reading came in lower than expected at 0.1% MoM leading the market to rise in anticipation of further stabilization in the near term.
Implications of the SEC lawsuits
Last week’s SEC charges against Binance and Coinbase caused turmoil in the market, particularly for tokens implicated as Digital Asset Securities in the filings. The combined market share of BTC, ETH, and stablecoins currently sits at 80.5% for the first time since February 2021. Additionally, all coins mentioned as potential securities in the filing, apart from SOL, have now yielded negative returns since the BTC bottom of November 21, 2022.The current uncertainty has multiple implications, most notably a plausible act of caution from institutional investors to allocate to altcoins amidst the murky regulatory background of the implicated tokens. Funds will likely retort to a hands-off approach due to excess compliance work and overall low trading volumes, disincentivizing market participants to engage. This could limit liquidity further onwards and lead to a prolonged slow market.
Token holders should brace for a dragged-out judicial process in light of the ongoing XRP charge, which has currently lasted 2.5 years, as we elaborate further on page 6.
An underappreciated development from the aftermath of the charges has been the firm acknowledgment of BTC’s commodity properties, highlighted by SEC chair Gary Gensler. Ether has also yet to be implicated, potentially due to the longevity of its existence. Over the next year, we could thus see the BTC and ETH dominance strengthen further due to the cost and risk burden of allocating capital to altcoins from the 2017 era and beyond.
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