How should investors avoid risks under the encryption "storm"?

Author: BitpushNews Asher Zhang

With the US SEC filing lawsuits against Binance and Coinbase, the encryption market has experienced a huge shock. Under the panic, how should investors avoid risks? Behind this crisis, who is the biggest beneficiary in the encryption market? Is the risk in the crypto market over in the short term amid the US SEC lawsuit? In the long run, after the "crisis", what kind of huge opportunities does the encryption market face?

The U.S. regulatory stick falls, how should investors avoid risks

Since the U.S. SEC filed a lawsuit against Binance and Coinbase, there is no doubt that ** Binance and Coinbase have been hit hard, and funds have begun to flee in panic; in contrast, the flight of funds from Binance is more serious. **

According to the "Bittweet" report, data from blockchain analysis companies Nansen and Glassnode show that from Monday to Thursday last week, the three exchanges Binance, Coinbase and Binance US had a net outflow of 31% through the Ethereum network. billion, and Bitcoin (BTC) had a net outflow of $864 million. ** Among them, Binance’s net outflow of Ethereum in four days was 2 billion US dollars. This metric includes ETH and all Ethereum-based tokens. At the same time, there was a net outflow of $838 million (31,868 BTC). Coinbase’s Ethereum net outflow reached $1 billion, and Bitcoin’s net outflow totaled $25 million. Binance US Ethereum net outflows totaled $75 million. Since the SEC lawsuit, roughly $4 billion has flowed out of Binance, Coinbase and Binance US.

In addition to the obvious outflow of funds from Coinbase and Binance, the SEC listed 10 encrypted assets as securities in the lawsuit against Binance, including BNB, BUSD, SOL, ADA, MATIC, ATOM, SAND, MANA, AXS, and COTI; In the lawsuit, 13 encrypted assets were listed as securities by the SEC, including SOL, ADA, MATIC, SAD, AXS, CHZ, FLOW, ICP, VGX, NEXO, etc. There are now 67 tokens listed as securities by the SEC amid a long-running regulatory campaign. Among them, there are two types of tokens with a market value of more than US$10 billion, namely BNB and XRP. There are 10 kinds of tokens with a market capitalization of one billion to ten billion U.S. dollars, including public chain native tokens such as SOL, ICP, TRX, ATOM, and NEAR. There are 11 types of tokens with a market capitalization ranging from 100 million to 1 billion US dollars, including well-known projects such as SAND, MANA, and AXS, as well as public chain native tokens ALGO, LUNC, etc. There are a total of 31 types with a market capitalization of less than US$100 million. From the perspective of market performance, the tokens named by the SEC generally fell sharply.

So, as an investor, how to avoid risks? According to the "Bittweet" report, according to CoinGecko data observations, after the SEC filed lawsuits against cryptocurrency exchanges Coinbase and Binance, the trading volume of the top three decentralized exchanges (DEX) surged by 444%. **Especially between June 5th and June 7th, Uniswap V3 (Ethereum), Uniswap V3 (Arbitrum) and Pancakeswap V3 (BSC) accounted for 53% of the total DEX trading volume in the past 24 hours , an increase of more than $792 million. Additionally, trading volumes on DEX Curve, which supports stablecoin trading, soared 328%.

After the US SEC filed a lawsuit against the centralized exchange, the market demand for DEX has increased significantly. DEX may gradually move towards the center of the encryption trading stage; and in terms of token performance, only Bitcoin is currently in the encryption market. The performance is the strongest. At the same time, Bitcoin is also a non-securities token recognized by major US regulatory agencies, and its risks in all aspects are relatively small.

After the competition, Bitcoin may become the biggest beneficiary

Since the beginning of this year, firstly, the Bitcoin "New Culture Movement" has developed in full swing; then, the encryption market ushered in the supervision of the US SEC, which once again hit most encrypted assets in the market, especially the public chain tokens based on the PoS mechanism. **Bitcoin appears to be becoming the biggest beneficiary after the competition of public chains. **

According to the "Bittweet" report, Twitter founder Jack Dorsey tweeted on June 6 that there are currently only three scalable anti-censorship technologies-onion routing (tor), Bitcoin, and the Nostr protocol. Niche market status, which shows that** most of the world doesn't really care about censorship issues. ** Granted, none of these technologies are currently available or easy to use, but that will change one day. In addition, Pierre Rochard of Riot Platforms commented on Coinbase’s regulatory incident and said: Coinbase should transform its business back to the past and focus on Bitcoin. Jack Dorsey reposted and commented, and 100% agreed with this statement. DCG founder and CEO Barry Silbert also tweeted that in the successive lawsuits initiated by the US SEC, none of the PoW tokens were listed as "securities". I believe BTC, LTC, XMR, ETC, and ZEC.

Looking at on-chain data, HODLing remains a major market dynamic, according to Glassnode data, as determined HODLers remain steadfast in the face of adversity, sending the Bitcoin Supply Last Active Bands to a new ATH. Supply lasting more than 1 year: 68.4%; Supply lasting more than 2 years: 55.5%; Supply lasting more than 3 years: 40.1%; Supply lasting more than 5 years: 28.9%. Most notably, we can observe a significant increase in maturities above 2 years, as a large number of tokens purchased during the May-July 2021 miner migration have been stagnant and aged above the maturity threshold.

CryptoChan (@0xCryptoChan) also tweeted that the daily inflow of BTC long-term holders' chips on the off-chain chain to the exchange accounted for more than 0.025% of the total long-term holders' chips, marked with a red column; less than 0.025% , marked with a blue bar. This percentage has been very stable in the past one or two months. In the face of the recent turbulent regulatory wave from the US imperialists, long-term holders have no waves in their hearts.

Under the wave of supervision, what kind of "danger" and "opportunity" will the encryption market face

In the US SEC indictment, the SEC accused CZ of declaring that the Binance.com platform does not serve Americans, but in fact CZ instructed Binance staff to assist certain high-net-worth US customers to evade control—by changing IP addresses through VPN or by setting up remote In addition, CZ actively solicited US investors to trade on the Binance platform through its social media and other Internet posts in order to retain US investors. In addition, the SEC also accused Binance of misappropriating customer assets through Merit Peak and Sigma Chain. Judging from the SEC indictment, the SEC’s allegations cite the words of many Binance internal and related executives, which may not be groundless. In the short term, Binance faces the possibility of being frozen by the US SEC.

On the whole, the lawsuit between Binance and the SEC is expected to be protracted, and it is likely to enter the US Supreme Court; but if the SEC really freezes Binance’s assets, then Binance’s liquidity may face a rapid loss, after all, the United States is accustomed to long-arm jurisdiction. ** Once there is a crisis in Binance, it will cause a huge negative for the entire encryption market, and the encryption market is expected to experience an overall decline; although Bitcoin is likely to remain strong, it is still expected to decline to a certain extent. **According to "Bittweet" report, the federal judge postponed the temporary restraining order on Binance.US, and the SEC and Binance.US will continue to negotiate. It seems that the market has turned around, but the risk of Binance US assets freezing cannot be said to be completely lifted. From the technical chart, MA200 is currently an important support level below Bitcoin, and its price is around $23,600.

In the medium and long term, the recent lawsuits initiated by the US SEC may eventually accelerate the US regulatory legislation for the encryption market. **In addition to Binance, the US SEC is also suing Coinbase. Coinbase is a US listed company with a large number of users in the US. The prosecution of this exchange may stimulate Congress to take active actions in cryptocurrency regulation. The voices of all parties in the market are getting stronger and stronger. According to "Bittweet" report, Coinbase CEO Brian Armstrong said in an interview that there is a power struggle between the US SEC and CFTC, and Coinbase has been "sandwiched" in the turf war between the two institutions . **Industry needs clarity as both sides fail to reach agreement on status of cryptocurrencies as securities or commodities. To make that clear, Congress has to step in and enact legislation. Until there is legislation, the crypto industry will rely on case law, which will emerge in the SEC's lawsuit against Coinbase last week.

The U.S. legislature has also noticed the seriousness of the situation one after another, and has started to hold hearings one after another, which can also be regarded as providing some preparations for the legislative work. According to the "Bittweet" report, Patrick McHenry, chairman of the Financial Services Committee of the U.S. House of Representatives, announced that a meeting with the theme "The Future of Digital Assets: For Digital Asset Ecosystem Provides Clarity" hearing. Circle co-founder and CEO Jeremy Allaire released his testimony to be delivered at a hearing on digital assets held by the U.S. House of Representatives Financial Services Committee. In his testimony, he strongly called for faster legislation. Jeremy said: "The measures taken by the US government in the next few years will have a significant impact on the competitiveness of the US dollar in the following decades. The Stablecoin Act is a crucial piece of legislation and the first step in creating a regulatory framework that will also Have significant impact far beyond digital asset markets. Now is the time for US leadership in setting global rules. With the right regulatory framework, stablecoins and blockchain networks can scale to support billions of users and trillions of dollars in payments Activity."

Summarize

On the whole, **US SEC has two core targets for this supervision: one is centralized exchanges such as Binance and Coinbase, and the other is most PoS-based tokens; this has caused a surge in DEX trading volume, while PoW-type public chain tokens such as Bitcoin performed relatively well. **In addition, as the SEC filed lawsuits against Coinbase and others, due to the importance of the case and intense market disputes, it has become urgent for Congress to legislate. In the end, whether it is congressional legislation or court judgments, it will have a profound impact on the encryption industry, thus bringing the US encryption market into an era of "law-based" regulation. In addition, in a sense, what we are currently experiencing is undoubtedly an important milestone for encrypted assets and encrypted markets to truly enter the traditional financial market.