Crypto Ecosystem

How crypto markets reacted to SEC actions against Binance and Coinbase

, June 15, 2023

In this week’s crypto highlights, we explore the price movements of BTC, MATIC, BNB, and UNI. Additionally, this recap includes other notable industry news items that occurred over the last seven days. Without further ado, let’s dive into the latest market developments.

Noteworthy market events

SEC trying to freeze Binance.US assets; platform plans to become crypto-only

Last week, the hottest news was the U.S. Securities and Exchange Commission’s (SEC) lawsuits against Binance and Coinbase. But in this edition of our market moves recap, we’d rather focus on what happened right after this event. 

On June 6, the SEC filed a motion to freeze digital assets held by Binance.US. According to The Block, the regulator demanded the freeze due to allegations that executives and Changpeng Zhao (CZ), CEO of Binance, were redirecting client funds to Zhao’s own investment funds. Binance.US tweeted about the event, calling the filing of the preliminary injunction “unwarranted.” CZ then clarified that the potential asset freeze, if approved by the court, threatens only the U.S. division, and not the international exchange.

On June 13, U.S. District Judge Amy Berman Jackson said that Binance.US and the SEC “aren’t that far apart” on ways to protect billions of dollars in customer funds. The judge ordered the two entities to work toward a compromise.

Amid this battle with the SEC, the platform suspended all U.S. dollar deposits and recurring buy orders. It encouraged its customers to withdraw fiat funds through June 13, as it transitioned to a crypto-only exchange. On that date, the platform’s banking partners blocked the channels for withdrawing U.S. dollars due to regulatory pressure, Binance.US noted. The market depth on Binance.US dropped by over 75%, starting from the SEC’s action against the company on June 5.

“Hinman docs” revealed in Ripple’s SEC lawsuit

Ripple released a series of emails tied to former SEC Director of Corporation Finance, William Hinman’s, 2018 speech where he stated that Ether did not appear to be a security. The emails reveal discussions among SEC officials suggesting the inclusion of caveats or clarifications in Hinman’s speech, to avoid potential contradictions or a rigid stance.

After publishing the emails, Ripple Chief Legal Officer Stuart Alderoty tweeted, stating that “Hinman ignored multiple warnings that his speech contained made-up analysis with no basis in law, was divorced from the Howey factors, exposed regulatory gaps, and would create confusion in the market.”

However, one document revealed the SEC’s interaction with Ethereum co-founder Vitalik Buterin. It confused observers, leading to speculation about potential favoritism towards Ethereum over Ripple, and the resurgence of the #EthGate hashtag. Some observers argued that the speech should be considered Hinman’s personal point of view rather than the agency’s position.

Ethereum developers approved details of future Dencun upgrade

Ethereum developers agreed on the details of a future network upgrade called Dencun (Cancun-Deneb). A key component will be an EIP-4844, known as proto-danksharding. The solution is dedicated to reducing commissions for rollups.

Among other changes, the hard fork includes:

  • EIP-1153 — reduces fees for storing on-chain data, and optimizes block space;
  • EIP-1153 — improves the efficiency of cross-chain bridges and staking pools;
  • EIP-5656 — makes minor changes to the Ethereum Virtual Machine;
  • EIP-6780 — removes code that can prevent smart contracts from working.

The developers have not determined the exact date of the hardfork activation of the update. But they anticipate its deployment this year.

A bug in Arbitrum caused short-term suspension of transactions

On June 7, Ethereum’s layer 2 network, Arbitrum, experienced a temporary transaction processing halt caused by an unexpected software bug. The bug impacted Arbitrum’s sequencer, which handles the batching and posting of user transactions on the blockchain. The sequencer requires funds to cover transaction fees, and has an auto-refill code to maintain a sufficient balance. 

However, the bug led to the sequencer running out of funds, resulting in a substantial backlog of transactions. The network remained inactive for several hours until the developers of Arbitrum implemented a fix to resolve the problem.

Notably, it’s the fourth incident of this kind. The reason it affected the entire network is that “the sequencer is a single, centralized entity” as stated in Arbitrum documentation. But developers also said there that they plan to transfer “sequencing affordances to a distributed committee of sequencers which come to a consensus on ordering.”

One sentence news

  • Crypto.com announced that it will cease its institutional service for U.S. clients on June 21.
  • The TrueUSD (TUSD) stablecoin temporarily depegged, after news that one of the stablecoin’s partners, Prime Trust, may temporarily halt minting.
  • BitGo reached a tentative agreement to acquire cryptocurrency custodian Prime Trust.
  • Members of the U.S. Congress drafted a bill aimed at removing Gary Gensler, the current Chair of the SEC.

BTC dominance is on the rise

SEC actions against Binance and Coinbase caused a sell-off in crypto markets, and even oranges turned red. The crypto market cap lost almost $100 billion in a few days, while multiple assets dipped by more than 20%. Various platforms, including those with roots in other industries such as Robinhood and eToro, decided to delist assets the SEC has labeled unregistered securities in its lawsuits. 

Amid increased bearish sentiment, Bitcoin moved below $26,000 for the first time in three months. The SEC scared crypto markets so much that even better than expected U.S. consumer price index (CPI) data didn’t help Bitcoin much, while wider markets experienced  temporary relief. When the U.S.Federal Reserve kept the base interest rate unchanged for the first time since March 2022, the Bitcoin price temporarily dropped below $25,000.

However, there was a positive outcome for Bitcoin through recent events: its dominance in crypto markets increased. According to TradingView, BTC dominance approached 50%, increasing by 3% in a week. This suggests that some investors moved from altcoins to Bitcoin, considering it a potential safe haven. Such behavior is common during bear markets, and when the crypto industry encounters challenging events. For instance, BTC dominance was inside an uptrend during 2018-2019, and experienced local jumps after Terra and FTX collapses in 2022. 

Despite this, there are factors that may continue driving the Bitcoin price downward. According to CryptoQuant, U.S.-based crypto exchanges have been dethroned by international competitors in terms of the amount of Bitcoin and Ether they hold in custody for their customers. But decreased market depth on these exchanges may also lead to increased price volatility. 

In addition, Sentiment reported that Bitcoin supply on exchanges decreased to their lowest levels since February 2018, suggesting that investors may be trying to ride out turbulent times. Furthermore, Glassnode registered the third-largest inflow of BTC from miners to exchanges. In the past, such spikes preceded downward movements.

As we mentioned a month ago, Bitcoin’s current price movement slightly resembles the one the asset experienced in March 2023. The asset dropped below the 200-week SMA and 0.382 Fibonacci point, as well as potentially invalidating a bullish falling wedge pattern. At the time of this writing, Bitcoin is testing the 0.5 Fibonacci point near $25,000. If broken, this could push the asset to 0.618 Fibonacci level and 200-day SMA. In March 2023, Bitcoin rebounded from that area. 

However, the existing downtrend is accompanied by decreased volume. In turn, lower timeframes already hint at a potential rebound, forming bullish divergences with MACD and RSI. A bounce from 0.5 Fibonacci point could potentially drive the asset back to $26,300.

MATIC bounced off a psychological level of $0.50

After MATIC was deemed, among other tokens, an unregistered security by the SEC, the team behind Polygon firmly refuted this classification. This response garnered support from institutional investors, evident in increased trading activity on-chain. Nevertheless, the MATIC price dropped by more than 20% in a week, touching a psychological level of $0.50. After that, the asset rebounded above $0.60. 

One of the potential catalysts could be the announcement of Polygon 2.0. As part of this initiative, Polygon 2.0 will become a network of zero-knowledge (ZK) layer 2 chains that will be able to communicate amongst themselves. A blog post from the project also shared that on the user end, the network will feel like a single blockchain.

The announcement of how Polygon plans to address its proof of stake (PoS) chain is set for next week. Following that, Polygon will make a series of announcements over the next four weeks on the blockchain’s architecture, its token, and governance.

If Polygon 2.0 details bring confidence among investors, the MATIC price could retest $0.73. The asset is still in the oversold zone, which could support a price recovery. However, a drop below $0.60 may reestablish bearish pressure, potentially pushing the asset to retest the $0.50 level.

BNB formed a bullish divergence

Although BNB Chain developers successfully activated a network upgrade called Luban, which improved the security of transactions, it didn’t help the price of the native token. The SEC lawsuit against Binance had a substantial effect on BNB, resulting in a 30% decline days after the event. 

The asset moved out of the rectangle pattern (white channel), which is typically considered a continuation pattern. Eventually, BNB reached a support area near $220, but then rebounded to $250. 

The asset remains in the oversold zone on a daily timeframe. In addition, BNB formed a bullish divergence with RSI on a four-hour chart, while MACD approached a zero line. This suggests that a price recovery has the potential to continue. For that, the asset may need to consolidate above $253, which corresponds to 0.236 Fibonacci point. If failed, bears may try to move the asset back to the $220 level.

UNI price dropped despite increased DEX trading volume

In the past two weeks, there has been a notable surge in transaction volumes on decentralized exchanges (DEXs) such as Uniswap. This increase coincided with regulatory actions taken by the SEC. From June 9 to June 13, transaction volumes on Uniswap surged by more than 400%, according to Santiment.

In addition, Uniswap Labs posted an early code implementation of the next version of the protocol, called Uniswap v4, with new features, and asked its community for feedback and contributions.

However, the UNI price still experienced a drop, following the rest of the crypto markets, and temporarily reached the $4 level. Soon after that, the asset started to experience a price recovery. If the increased interest in DEXs persists, the UNI price could rebound toward $5. The asset is still in the oversold zone, which may support upward movement. But the bears could invalidate this rally if the price drops below the $4 support zone.

Tune in next week, and every week, for the latest CEX.IO crypto highlights. For more information, head over to the Exchange to check current prices, or stop by CEX.IO University to continue expanding your crypto knowledge.

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Disclaimer: For information purposes only. Not investment or financialadvice. Seek professional advice. Digital assets involve risk. Do your own research.

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