Crypto markets witnessed an eventful week with notable price movements and regulatory developments

• At the beginning of the week, BTC and ETH opened at around $27,500 and $1,900, respectively. However, the market sentiment quickly turned negative due to significant announcements from the U.S. Securities and Exchange Commission (SEC) targeting major exchanges. Despite these challenges, both BTC and ETH demonstrated resilience and managed to bounce back after the drawdowns. BTC stabilized around the $26,500 level, while ETH found support around $1,850. This stabilization offered some relief to investors, as the market demonstrated signs of recovery and regained stability.
• SEC vs. Binance: The Securities and Exchange Commission (SEC) filed 13 charges against Binance and its founder, Changpeng Zhao. The allegations include commingling user funds and sending them to a European company controlled by Zhao. The SEC claims that Binance allowed high net worth U.S. investors to trade on their unregulated international exchange, using Binance.US as a shield. In addition, allegations state that a trading firm owned by the CEO of Binance, Changpeng Zhao, was conducting wash trading on Binance.US from September 2019 until June 2022. The news led to a sharp correction in the market, with BTC and ETH falling by more than 5% and liquidations totaling up to 300M. The SEC later filed a temporary restraining order to freeze assets from Binance.US. As a consequence of the charges, Binance.US announced to suspend fiat deposits and withdrawal as of June 13. After the news became public, BTC prices on Binance.US started to diverge from prices on other exchanges, as the chart below illustrates:

• SEC vs. Coinbase: Following the lawsuit against Binance, the SEC surprised with another complaint, this time against Coinbase. The SEC alleges that Coinbase has not registered as a broker, national securities exchange, or clearing agency, avoiding required disclosure frameworks. Tokens offered by Coinbase, including Solana (SOL), Cardano (ADA), and Polygon (MATIC), are mentioned in the lawsuit. Coinbase's staking program is considered an investment contract and thus a security, according to the SEC.
• As witnessed in the last couple of months, liquidity on major centralized exchanges has decreased, with the USD amount needed to move prices 1% decreasing, suggesting that market participants, especially market makers, became cautious. On the flipside, DeFi trading volumes have surged after the legal actions by the SEC. Tokens classified as securities in the latest SEC complaints have been experiencing a particular drop in liquidity on Binance.US and other exchanges, while liquidity has remained stable on Kraken and Coinbase for the same tokens, which is a positive sign.
• Atomic Wallet Hack: Approximately $35 million worth of cryptocurrency was stolen from users of Atomic Wallet since June 2. The attack resulted in lost tokens, erased transaction histories, and complete theft of crypto portfolios. The largest victim lost $7.95 million in Tether (USDT). Atomic Wallet, with over 5 million users globally, is currently investigating the cause of the attack but has not provided detailed information to affected users.
• Traditional markets: On the macro side, Oil prices surged as Saudi Arabia, the world's top exporter, announced additional production cuts from July, tightening the market and potentially supporting prices in the second half of the year. U.S. President Joe Biden signed a bill raising the country's debt ceiling, averting a potentially damaging default, and providing relief to global markets. In Asia, China's services sector showed accelerated growth in May, driven by the relaxation of COVID-19 restrictions, while its manufacturing sector contracted, raising concerns about a potential slowdown in the country's economic recovery, fueled by the country’s weak exports numbers. Investors are cautious ahead of upcoming interest-rate decisions from the Federal Reserve and the European Central Bank.US data suggesting a cooling labour market supports the belief that the Fed will pause its rate hikes.

Our Take

In light of the allegations against Binance and Binance.US, it is important to consider the potential long-term benefits of shedding light on and eliminating any wrongdoing such as wash trading and comingling of funds. Addressing these actions is crucial for the overall health of the cryptocurrency industry, and we think it will provide more clarity and transparency in one way or in another. The regulatory actions will have potentially far-reaching implications that will unfold in the coming months. From a market structure perspective, it is important to recognize that the impact on liquidity has not been evenly distributed among exchanges.

Looking at the short term price action, BTC is consolidating above the $26k level, and we believe a move below that level might result in a further decline. Resistance is seen at $27’400, breaking this level may lead to an upside correction.

The Week Ahead

• 13.06 - Tuesday,: German CPI, U.S. (Core) CPI
• 14.06 - Wednesday: Fed Interest Rates Decision, U.S. PPI, China Industrial Production
• 15.06 - Thursday: ECB Interest Rates Decision, BoJ Interest Rates Decision
• 16.06 - Friday: Eurozone (Core) CPI

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