05 Jun 2023
SEC targets exchanges for pushing unregistered securitiesBTC drops sharply on the SEC news.
SEC suing Binance and Coinbase led to a sharp market drop.
SEC targets Binance and Coinbase Bitcoin saw a sharp push lower yesterday amidst SEC’s lawsuit vs. Binance, leading BTC to reach lows not seen since March 17 and to retest range highs from February 21 before stabilizing at $25,700. The past week’s downtrend from highs above $28k has widened the trading range further, signaling a new volatility regime ahead. The key catalyst behind yesterday’s 5% decline was SEC suing Binance. Earlier this year, Paxos was ordered to stop the issuance of BUSD, and the CFTC sued Binance over willful evasion of Federal Laws. U.S. regulation enforcement has made 2023 a challenging year for Binance, and the final outcome of the strong push against Binance is out in the open. A majority of the claims against Binance are related to Binance’s presence in the U.S. and may end with Binance being forced to shut down its U.S. offering completely. Following the news of SEC’s push against Binance, the derivatives market saw its biggest long liquidation volume this year, as a slow and steady market environment has conditioned traders to take on more risks. Open interest surged in the aftermath, while funding rates fell deep into negative terrain on Binance, potentially indicating that the market has become overly exposed towards further downside. CME activity also blossomed amidst the crash, accompanied by a sharp plunge in CME’s basis, as bearish flows dominated. Coinbase’s shares plunged by -9% amidst the shaky market yesterday, potentially caused by the SEC’s arguments to classify major altcoins as securities, as elaborated further below. And just as this report was to be published, news came of the SEC suing Coinbase for making available crypto asset securities.Security bonanza In SEC’s case against Binance, and now also Coinbase, multiple arguments were made to classify major altcoins as securities by the SEC. The impacted altcoins are highlighted in red in the bar chart on page 3. Security classifications would affect all U.S. crypto exchanges, leading to a forced closing of various altcoin pairs. ICOs and allocations post ICOs were key arguments served by the SEC against these altcoins. Interestingly, ETH was not implicated as a security, despite similar characteristics to its current staking model and its ICO to several of the highlighted coins. This silver lining might explain ETH’s outperformance vs. BTC amidst yesterday’s sell-off.Implied volatility diving lower Yesterday’s SEC lawsuit against Binance did little to elevate the already suppressed implied volatility in BTC options as options IVs remain firmly at all-time lows. The current regime in crypto options is unique, as market makers and funds still happily sell options in anticipation of further drought in the market. As elaborated in our monthly outlook, we believe the current implied volatility regime represents a strong opportunity for expressing contrarian bets. Both the 6-month and 12- month IVs sits attractively priced, leading directional bets in options to become increasingly more attractive.