Good morning. Here’s what happens:
Prices: Bitcoin fell to $25.4K at one point after the SEC sued crypto exchange giant Binance. Will the markets recover?
Insight: stETH’s market value is now the seventh largest among digital assets. What is behind the move and will it last?
The SEC lawsuit has encryption in the crypto markets
The crypto industry’s latest blow rocked digital asset prices on Monday.
Bitcoin was recently trading at around $25,750, down almost 5% in the last 24 hours. Much of the initial decline occurred in the two 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 capitalization comfortably topped $27,000 for much of the past week, but the allegations against Binance reignited fears about the industry̵[ads1]7;s integrity and regulators’ intention to exert more control over exchanges. Binance – and other exchanges – have been subject to regulatory scrutiny for years.
“The Binance news obviously led to a big selloff, but the news itself wasn’t exactly surprising,” Bob Ras, co-founder of Sologenic, a blockchain-powered securities tokenization network, told CoinDesk. “Rumours had been swirling for some time about upcoming actions against Binance.”
But Ras added that he was not convinced “that we are going to experience massive liquidations,” similar to those following the 2022 implosions of Luna, Celsius and FTX. “Back then we saw a lot of forced sellers. I don’t think there are nearly as many forced sellers now as there were then. I suspect we will probably be in for a gradual recovery here.”
Ether, the second-largest crypto by market cap, recently changed hands below $1,800, down more than 5% from Sunday’s same time. ETH and other major altcoins followed a similar trajectory as bitcoin did on Monday, with the bulk of their declines coming in the immediate hours following the SEC filing. BNB, Binance’s exchange token, and SOL, the original cryptocurrency of the Solana blockchain, recently plunged more than 10%. ADA and MATIC, the tokens of smart contract platforms Cardano and Polygon, respectively, and the popular meme coin DOGE were recently down more than 8%. Even litecoin, which has rallied in recent weeks, fell more than 9%. The SEC filing called these tokens unregistered securities.
The CoinDesk Market Index, a measure of crypto market performance, fell more than 6%. All six sectors that make up the index, including DeFi, computing and culture and entertainment, stumbled into negative territory. The Crypto Fear & Greed Index remained neutral, where it has been for most of the year.
In a note to CoinDesk, Joe DiPasquale, CEO of crypto fund manager BitBull, called the SEC filing “not surprising,” but also wrote that the exclusion of ether from the filing was “a good sign.” He added: “Unless some major developments affect Binance’s functioning, we don’t think the market is likely to lose much more.”
While broader stock indexes, including tech-heavy Nasdaq Composite and the S&P 500, largely shrugged off the Binance ruckus and ticked down a few fractions of a percentage point, industrial-focused stocks fell. Coinbase shares fell more than 5% immediately after the filing was released and were more than 9% lower at the close. Shares of MicroStrategy (MSTR), which has a huge amount of bitcoin on its balance sheet, fell more than 8.5%, Bitcoin miners Riot Blockchain (RIOT), Marathon Digital (MARA) fell more than 8%, while Bitfarms (BITF) fell more than 7.4%. Safe-haven asset gold traded flat just below $1,980.
The fallout from lawsuits seemed to seep into every corner of the crypto universe. As of Monday afternoon (ET), Binance had suffered more than half a billion in net outflows, according to a Dune Analytics chart from crypto investment product provider 21Shares. Traders withdrew more than $1 billion of digital assets during that period, compared with $546 million in deposits, according to the chart. According to crypto data platform CoinGecko, the +2% depth for BTC on Binance is $2.7 million, which Charles Storry, head of growth at Phuture, a crypto index platform, told CoinDesk was “very 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 had “continued to operate relatively normally since being charged by the CFTC” earlier this year. “American users have also long been barred from accessing Binance,” he wrote. “It’s hard to find an element in this story that really changes the status quo.”
He added: “It’s important to keep in mind that Binance’s regulatory issues don’t implicate bitcoin. It’s hard to imagine any traders looking at the SEC’s allegations and thinking that anything there is detrimental to the bitcoin bull thesis. But given the scale of cross security in the space, along with exaggerated correlations, it is not surprising to see bitcoin sell off.”
Sologenic’s Ras believes that if the US Federal Reserve stops raising interest rates this month or later this summer, “we will likely see a return with some serious positive momentum.”
But he pessimistically noted that when investors in this market “feel jittery, it will take time to restore confidence. The SEC’s actions are pushing many crypto projects out of the US, and from this perspective, this is clearly becoming a net negative for the US economy and innovation more generally.”
Lido’s stETH token is now the seventh largest token by market cap, just ahead of Cardano and just behind XRP, according to data from CoinGecko.
stETH has exited the ADA because the market has become comfortable with staking, and the market has been searching for a staking solution that is not going to be affected by US regulatory uncertainty.
All this should be an endorsement of stETH, as there is considerable institutional confidence in the betting mechanism behind it. As CoinDesk previously reported, rising demand for ether staking led to a month-long wait for nearly 50,000 validators, especially after the Shapella upgrade, which stimulated a surge in deposits and an influx of new market participants, locking up over 19 million ETH for staking. At the same time, analysts who spoke to CoinDesk have continued to downplay fears of any kind of price crash following the Shanghai upgrade – and continue to be proven right – highlighting the balance between new bets and withdrawals, the inherent withdrawal limits and the mitigating effects of floating bid derivatives.
So staking is a healthy market, and works permanently. Lido dominates it for the long term, controlling 28% of the market with $13.4 billion in total value locked up, according to DeFi Llama data. And it’s a competitive market too; there are 60 betting protocols with over $1 million in TVL. Lido’s closet competitor has $2.2 billion in TVL.
The only thing that can sink this ship is if a larger percentage of staked ether becomes profitable. Right now it’s only 31%, but we’re only one bank failure and DeFi summer away from it hitting 50%. Will there be a rush with withdrawals then?
Bitcoin (BTC) fell nearly 2% in the past 24 hours and back below $27,000 as JPMorgan releases a new report that finds retail demand for bitcoin is likely to remain strong ahead of the next halving event. eToro market analyst Josh Gilbert weighed in. Additionally, Blockchain Association CEO Kristin Smith joined to discuss the group’s amicus brief filed in an ongoing lawsuit by Coin Center against the Treasury Department and its sanctions watchdog. Plus, a look at the first Consensus @ Consensus report.