Crypto market woke up to a nightmare weekend, with the leading cryptocurrency Bitcoin (BTC) losing 2.5% of its value since morning. While BTC dropped below $26,000, it became evident that altcoins were hit even harder. Most altcoins saw a decline of 5% or more, with some prominent ones turning completely red with losses of 10% or higher.
Looking at the current state of the top 10, the biggest losers appear to be Tron (TRX), Dogecoin (DOGE), Cardano (ADA), XRP, Binance Coin (BNB), and finally Ethereum (ETH). It is not surprising that Solana (SOL), Cardano (ADA), Binance Coin (BNB), and Polygon (MATIC) are among the biggest value losers. There are multiple possible reasons behind this decline, with the United States being the primary factor, as expected.
SEC and CFTC Pressure Straining Altcoins
SEC has classified MATIC, BNB, ADA, SOL, and many other leading altcoins as securities, leading several major exchanges to take action against them. Robinhood recently announced that it would delist many of these altcoins.
However, the pressure does not come solely from the SEC. Another U.S. regulator, CFTC, also made a similar statement regarding the crypto industry. CFTC received positive news in the Ooki DAO case, which it had previously taken to court. The decentralized autonomous organization that claimed it could not be sued was officially sued and found to be in the wrong. CFTC’s $643,500 penalty against DAO could set a precedent. This situation poses a threat to many DAOs and their associated cryptocurrencies, which may explain the sharp decline in Ethereum-based tokens.
CFTC emphasized in its statement:
“The court ruled in a landmark decision that Ooki DAO is a ‘person’ under the Commodity Exchange Act and, therefore, subject to liability for violations of the law. The court subsequently found that Ooki DAO did indeed violate the law as charged.”
The freezing of funds by Binance US, increasing pressure, and the potential chain reactions it may create could also be affecting the industry. The sharp rise in BTC price just before the expected order to freeze funds at Binance US suggests that users may have converted their funds into BTC to artificially create a surge. This was followed by a sharp drop, causing the market to crash.
A memorandum led by Senator Elizabeth Warren and sent to the U.S. Department of Justice proposing an investigation into Binance may have had an internal impact on the sector as well. The U.S. Department of Justice has not taken such action in the crypto sector yet, but if it does, it could change everything for Binance. Any change for the largest exchange in the industry would mean a change for the entire sector.
Decreased Liquidity in the Crypto Market
All these factors are giving rise to general concerns and hesitations regarding the crypto sector. Jump Trading and Jane Street, two major market makers in the crypto sector, recently signaled their intention to withdraw from the industry. Both companies pointed to U.S. regulations as the reason for their reduced market-making activities, particularly within the United States. It seems like both firms have already anticipated the future.
With liquidity decreasing in the crypto market these days, institutional investors are also approaching the sector with caution. CoinShares, one of Europe’s largest institutional investment firms, highlights a notable period of institutional outflows from the sector. This indicates that the amount of investment entering the sector is less than the amount leaving. Institutional investors may have chosen to act cautiously due to expected regulatory news or FED interest rate expectations.
The crypto sector and the overall macroeconomy are awaiting the FED interest rate decision, which will be announced on Wednesday. The extent to which the market has priced in this decision will only become clear when it is announced on Wednesday.
Sell in May, Go Away
Another popular possibility is the “sell in May, go away” adage. This expression usually refers to significant sell-offs in the stock market as summer approaches, as people shift their focus to taking a break rather than closely monitoring price movements. In the crypto sector, this trend might be occurring with a delay. Historical data shows a general downward trend in the crypto market during the third quarter, which is often regarded as a bullish signal.
