Why Has Bitcoin BTC Price Dropped to $25.4K? SEC lawsuit against Binance rocks crypto markets

Good morning Here’s what happens:

Prices: Bitcoin temporarily fell to $25.4k after the SEC sued crypto exchange giant Binance. Will the markets recover?

Insights: The market cap of stETH is now the 7th largest among digital assets. What is behind the move and will it last?

SEC lawsuit rocks crypto markets

The latest hit in the crypto industry shook digital asset prices on Monday.

Bitcoin recently traded around $25,750, down nearly 5% over the past 24 hours. Much of the initial downturn occurred in the two hours after the Securities and Exchange Commission (SEC) filed a lawsuit against Binance, alleging the stock exchange giant violated securities laws. The largest cryptocurrency by market cap has hovered well above $27,000 for most of the past week, but the allegations against Binance have revived concerns about the integrity of the industry and regulators’ intent to exercise more scrutiny over exchanges. Binance – and other exchanges – have been under regulatory scrutiny for years.

“Binance news obviously led to a big selloff, but the news itself wasn’t exactly surprising,” Bob Ras, co-founder of Sologenic, a blockchain-based security tokenization network, told CoinDesk. “There have been rumors of imminent action against Binance for some time.”

But Ras added that he’s not convinced “we’re going to see massive liquidations” similar to what happened after the Luna, Celsius and FTX implosions of 2022. “There were a lot of forced sellers back then. I don’t think there are nearly as many forced sellers today as there were then. I assume that we are in for a gradual recovery here.”

Ether, the cryptocurrency with the second largest market value, recently changed hands below $1,800, down more than 5% from the same time Sunday. ETH and other major altcoins followed a similar path to Bitcoin on Monday, with the bulk of their declines occurring in the immediate hours after the SEC lawsuit. BNB, Binance’s exchange token, and SOL, the Solana blockchain’s native cryptocurrency, both plummeted more than 10% recently. ADA and MATIC, the tokens of smart contract platforms Cardano and Polygon, respectively, and popular meme coin DOGE recently lost more than 8%. Even Litecoin, which has rallied over the past few weeks, fell more than 9%. The SEC lawsuit characterized these tokens as unregistered securities.

The CoinDesk Market Index, a measure of how crypto markets are performing, fell more than 6%. All six sectors that make up the index, including DeFi, computing, and culture & entertainment, stumbled into negative territory. The crypto fear and greed index remained in neutral territory, where it has largely stayed for most of the year.

In a note to CoinDesk, Joe DiPasquale, the CEO of crypto fund manager BitBull, called the SEC lawsuit “not surprising” but also wrote that excluding Ether from the filing is “a good sign.” He added, “Unless major developments impact how Binance works, we don’t think the market will lose much more.”

While broader stock indices, including the tech-heavy Nasdaq Composite and the S&P 500, largely ignored the Binance frenzy, falling a few fractions of a percentage point, industry-focused stocks tumbled. Coinbase stock fell more than 5% immediately after the filing was published and was down more than 9% at the close. Shares of MicroStrategy (MSTR), which holds a large 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 gold traded unchanged just below $1,980.

The aftermath of the lawsuits seemed to seep into every corner of the crypto universe. Binance had seen net outflows in excess of half a billion as of Monday afternoon (ET), according to a Dune Analytics chart by crypto investment products provider 21Shares. According to the chart, traders have withdrawn more than $1 billion in digital assets during this period, compared to $546 million in deposits. According to crypto data platform CoinGecko, the +2% bottom for BTC on Binance is $2.7 million, which Charles Storry, head of growth at Phuture, a crypto index platform, told CoinDesk is a “very low level of liquidity.”

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 function relatively normally since the CFTC imposed the fee earlier in the year.” “US users have also long been denied access to Binance,” he wrote. “It’s hard to identify an element of this story that really changes the status quo.”

He added: “It is important to remember that Binance’s regulatory issues have no impact on Bitcoin. It’s hard to imagine traders looking at the SEC’s allegations and thinking that anything there would hurt the bitcoin bull thesis. However, given the level of cross-collateralization in this space, coupled with exaggerated correlations, it is not surprising that Bitcoin is seeing a sell-off.”

Sologenic’s Ras believes that if the Federal Reserve pauses rate hikes this month or later in the summer, “we would likely see a return of some really positive momentum.”

However, he pessimistically noted that given investors’ nervousness in this market, it will take some time for confidence to be restored. SEC actions are pushing many crypto projects out of the United States, and clearly from this perspective this becomes a net negative for the US economy and innovation in general.”

According to data from CoinGecko, Lido’s stETH token is now the seventh largest token by market cap, just ahead of Cardano and just behind XRP.

stETH has displaced ADA because the market has become comfortable with staking and the market has been looking for a staking solution that will not be affected by the regulatory uncertainty in the US.

All of this should be an endorsement of stETH as there is significant institutional trust in the staking mechanism behind it. As CoinDesk previously reported, the increasing demand for Ether staking has caused nearly 50,000 validators to wait for a month, especially after the Shapella upgrade, which sparked a surge in deposits and an influx of new market entrants, and over 19 million ETH for locked the staking. At the same time, analysts who spoke to CoinDesk have continued to downplay fears of a price crash of any kind following the Shanghai upgrade — and remain right — by highlighting the balance between new players and withdrawals, inherent withdrawal limits, and the mitigating effect of liquid staking derivatives.

So staking is a healthy market and appears to be here to stay. According to DeFi Llama data, Lido dominates the market by a wide margin, controlling 28% of the market with a total value of $13.4 billion. And it’s also a competitive market; There are 60 stakeout logs with a TVL of over $1 million. Lido’s secret competitor has $2.2 billion in TVL.

The only thing that could sink this ship is if a larger percentage of the ether staked becomes profitable. Right now it’s only 31%, but we’re down to one bank failure and DeFi is a long way from hitting 50% in the summer. Will there be a rush for withdrawals then?

Bitcoin (BTC) is down nearly 2% in the past 24 hours, falling back below $27,000 as JPMorgan releases a new report saying retail demand for Bitcoin is likely to remain strong ahead of the next halving. eToro market analyst Josh Gilbert had his say. Blockchain Association CEO Kristin Smith was also on hand to discuss the group’s amicus brief, filed as part of an ongoing lawsuit by Coin Center against the Treasury Department and its sanctions regulator. Also, a look at the first Consensus @ Consensus report.

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