Good morning. Here’s what happens:
the prices: Bitcoin fell to $25.4k at one point after the SEC filed a lawsuit against cryptocurrency exchange giant Binance. Will the markets recover?
ideas: stETH’s market capitalization is now the seventh largest in a digital asset. What is behind this step and will it continue?
Cryptocurrency markets are taking a swing at the SEC lawsuit
The latest blow to the crypto industry rattled digital asset prices on Monday.
Bitcoin was recently trading at around $25,750, down nearly 5% over the past 24 hours. Much of the initial pullback occurred within a couple of hours after the Securities and Exchange Commission (SEC) filed a lawsuit against Binance, accusing the exchange giant of violating securities laws. The largest cryptocurrency by market cap has comfortably topped $27,000 for most of the past week, but the allegations against Binance have reignited concerns about the integration of the industry and regulators’ intent to exert more control over the exchanges. Binance – and other exchanges – have faced regulatory scrutiny for years.
“The Binance news obviously led to a major sell-off, but the news itself wasn’t entirely surprising,” Bob Ras, co-founder of Sologenic, a securities tokenization blockchain network, told CoinDesk. Rumors have been circulating for some time about upcoming actions against Binance.
But Ras added that he wasn’t convinced “we’re going to face massive selloffs,” similar to those that followed the 2022 internal crashes of Luna, Celsius, and FTX. “At that time, we saw quite a number of forced sellers. I don’t think there are nearly as many forced sellers now as there were then. I suspect we’ll probably be on a gradual recovery here.”
Ether, the second-largest cryptocurrency by market cap, was recently changing hands below $1,800, down more than 5% as of Sunday, at the same time. ETH and other major altcoins followed a similar path as did bitcoin on Monday with the bulk of the declines occurring in the hours following the Securities and Exchange Commission (SEC) lawsuit. BNB, the exchange token of Binance, and SOL, the native cryptocurrency of the Solana blockchain, have both recently fallen by more than 10%. ADA and MATIC, tokens for smart contract platforms Cardano and Polygon respectively, and popular meme coin DOGE, were recently discounted by more than 8%. Even Litecoin, which has been surging for the past few weeks, is down more than 9%. The SEC lawsuit called these tokens unregistered securities.
The CoinDesk Market Index, a measure of the performance of cryptocurrency markets, fell more than 6%. All six sectors that make up the index, including DeFi, computing, culture and entertainment, stumbled into negative territory. The Crypto Fear & Greed Index remained neutral, largely staying the whole year.
In a note to CoinDesk, Joe DiPasquale, CEO of crypto fund manager BitBull, called the SEC’s lawsuit “unsurprising,” but also wrote that the exclusion of ether from the deposit was a “good sign.” He added, “Unless any major developments affect Binance’s business, we don’t think the market is likely to lose much.”
While broader stock indices, including the Nasdaq Composite and the tech-savvy S&P 500, largely ignored Binance’s rant, falling to just a few fractions of a percentage point, industry-focused stocks fell. Coinbase stock fell more than 5% immediately after the deposit was issued and was down more than 9% when the market closed. Shares of MicroStrategy (MSTR), which holds a massive amount of bitcoin on its balance sheet, fell more than 8.5%, Riot Blockchain (RIOT) and Marathon Digital (MARA) fell more than 8%, while Bitfarms (BITF) fell more than 7.4%. Safe-haven gold was trading steady just below $1,980.
The ramifications of the lawsuit seem to be spilling over into all corners of the crypto world. By Monday afternoon (ET), Binance had suffered more than half a billion net outflows, according to Dune Analytics. Schedule Powered by 21Shares Provider of Crypto Investment Products. Traders have withdrawn more than $1 billion in digital assets over the period, compared to $546 million in deposits, according to the chart. According to cryptocurrency data platform CoinGecko, the +2% depth for BTC on Binance is $2.7 million, which Charles Storey, head of growth at Phuture, the crypto-index platform, told CoinDesk were “extremely low liquidity levels.”
In a Telegram note to CoinDesk, Strahinja Savic, head of data and analytics at Toronto-based crypto platform FRNT Financial, noted that Binance “has continued to operate relatively normally since being acquired by the CFTC” earlier this year. “U.S. users have also been denied access to Binance for a long time,” he wrote. “It’s hard to pinpoint an element in this story that really changes the status quo.”
He added, “It is important to keep in mind that regulatory issues at Binance do not implicate bitcoin. It is hard to imagine any trader looking into the SEC allegations and believing that anything there is detrimental to the bitcoin bull hypothesis. However, given the extent of the cross collateral in space, combined with exaggerated correlations, it is not surprising to see bitcoin selling.”
Sologenic’s Ras believes that if the US central bank stops raising interest rates this month or later in the summer, “we’ll likely see a return to seriously positive momentum.”
But he pessimistically noted that with investors in this market feeling nervous, it will take some time to restore confidence. The SEC’s actions are driving many crypto projects out of the US, and from this perspective, it’s clear that this has become a net negative for the US economy and innovation in general.
Lido’s stETH token is the seventh largest token by market cap, just ahead of Cardano and just behind XRP, according to data from CoinGecko.
StETH outperformed ADA because the market had become comfortable with staking, and the market was looking for a staking solution that wouldn’t be affected by US regulatory uncertainty.
This should all be an endorsement of staking, as there is great institutional confidence in the staking mechanism behind it. As CoinDesk previously reported, the growing demand for ether storage led to a month-long wait for nearly 50,000 validators, especially after the Shapella upgrade, which spurred an increase in deposits and an influx of new market participants, resulting in more than 19 million ETH reserved for installation. At the same time, analysts who spoke with CoinDesk continued to downplay fears of any kind of price collapse following the Shanghai upgrade — and they continue to be proven right — highlighting the balance between new bets and withdrawals, and inherent withdrawal limits and easing. The effect of liquid derivatives.
So staking is a healthy market and it seems to always be there. It’s narrowly dominated by Lido, controlling 28% of the market with a total locked value of $13.4 billion, according to DeFi Llama data. It is also a competitive market. There are 60 staking protocols with more than $1 million in TVL. Lido Closet competitor has $2.2 billion in TVL.
The only thing that could sink this ship is if a larger percentage of the accumulated ether becomes profitable. Right now it’s only 31%, but we’re only one bank failing, and that’s far from the summer DeFi that hit 50%. Will there be a rush of withdrawals after that?
Bitcoin (BTC) has fallen nearly 2% in the past 24 hours and is back below $27,000 as JPMorgan released a new report finding that retail demand for bitcoin is likely to remain strong ahead of the next halving event. Josh Gilbert, Market Analyst at eToro. In addition, Kristin Smith, CEO of the Blockchain Federation, joined in to discuss an amicus brief filed in an ongoing lawsuit by Coin Center against the Treasury Department and its sanctions watchdog. In addition, a look at the “Consensus @ Consensus” editorial report.