Lawsuits and Liquidations

On June 3rd, the United States Congress raised the debt ceiling by $1.2 trillion,  sidestepping the looming spectre of government default and shutdown. This move grants the government borrowing latitude until December 16, 2025, successfully mollifying market anxiety. 

While equity markets have maintained an aura of calm in recent days, a storm has engulfed the cryptocurrency realm. The SEC, with a predator’s intensity, has launched a sweeping regulatory offensive that precipitated a short-term plunge in major cryptocurrencies. At the epicentre of this assault is a lawsuit against Binance and its founder, Changpeng Zhao. They stand accused of a litany of infractions, including the provision of unregistered securities (BNB, BUSD, staking services), operating without mandatory clearance as a broker, exchange, and clearinghouse, alleged misuse of customer funds, and wash trading. This legal broadside sent Bitcoin spiralling down 5%, triggering $300 million in long liquidations, the most in a single day for 2023. Ultimately, it is up to the courts to decide whether the SEC’s action against Binance is warranted. However, the case is likely to have a significant impact on the cryptocurrency industry, regardless of the outcome.

The following day, the SEC’s regulatory wolfpack continued its hunt and set its sights on Coinbase. The charges launched against Coinbase echo those of Binance, extending to accusations of its staking program breaching securities laws. Consequently, Coinbase shares took a dramatic nosedive of 16% on Tuesday. Nevertheless, like a phoenix rising from the ashes, the crypto market demonstrated defiance in the face of these tumultuous events, potentially buoyed by the mass liquidation of leverage the previous day. Spearheading this rise, Bitcoin carved out a promising path; its ascent may have been catalysed in part due to its transparent regulatory standing in contrast to other crypto assets. Quite surprisingly, this wave of growth also swelled across the broader altcoin realm.

This rebound owes a degree of its momentum to liquidations; on Tuesday, more than $75 million worth of shorts were liquidated, possibly new positions forged in the wake of the Binance and Coinbase lawsuit revelations. This means that over the course of two days, there were both significant long and short squeezes resulting in $375m in liquidations. 

From a technical standpoint, recent days have proved extremely advantageous for scalpers, given the significant volatility driven by the recent regulatory turbulence. One crucial observation related to these technical factors is that the 9-day moving average (MA9) has just dipped below the 100-day moving average (MA100). The last time this transpired, Bitcoin experienced a sharp decline of 25% within a few short days. If a similar pattern of price activity does begin to materialise, the next crucial price level to monitor is $25,000. Should this support level prove resilient, it could suggest relative strength for Bitcoin.

As the dust settles on this tumultuous week, one thing is evident: the dynamic landscape of cryptocurrency has been altered. The regulatory crackdown has ignited a wave of transformation, impacting the fortunes of investors, stakeholders, and crypto enthusiasts alike. Amid the swift fall and rise of Bitcoin, the thunderous crash of Coinbase shares, and the relentless downpour of lawsuits, the market’s resilience has been tried and tested.

The echo of these seismic shifts will resonate far beyond the immediate aftermath, offering a clear signal to the crypto world: the age of lax oversight is coming to an end. Regardless of whether these lawsuits yield punitive outcomes or not, the message from the regulatory authorities is unequivocally clear: compliance is no longer a choice, but a necessity.