SEC targets exchanges for pushing unregistered securities
BTC drops sharply on the SEC news.
Preview
In Short
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.
