Cryptos again suffered another shock to the system with Binance, the world’s largest virtual currency exchange coming under fire. According to The Wall Street Journal, the U.S. Securities and Exchange Commission (SEC) sued the enterprise for operating an illegal trading platform in the U.S. and misusing customers’ funds.
Specifically, the US SEC lawsuit named Changpeng Zhao, Binance’s founder and controlling shareholder, as a defendant. Further, the regulatory agency alleged that Binance and Zhao diverted customer funds to a trading entity that Zhao controlled. The firm in question, Sigma Chain, engaged in manipulative transactions that obscured Binance’s true volume level.
As well, the SEC accused Binance of commingling billions of dollars in customer assets and sending them to a third party called Merit Peak (also owned by Zhao). Last year, the WSJ reported that the SEC was examining Binance’s U.S. arm’s relationship with Sigma Chain and Merit Peak. Fundamentally, the latest drama impacts cryptos because of the dark shadow it casts over the entire blockchain ecosystem. Already reeling from the FTX fiasco and other high-profile blockchain project implosions, advocates didn’t need this headwind. Unfortunately, investors should prepare for turbulence ahead for these digital assets.
As the most-watched name among cryptos, Bitcoin (BTC-USD) failing to hold onto key support lines doesn’t bode well for confidence. As of Monday night, BTC found itself trading a few hundred bucks shy of the $26,000 level. Over the past 24 hours, the crown jewel of cryptos slipped 5%. In the trailing seven days, it gave up almost 8% of its market value.
From the perspective of technical (chart) analysis, Bitcoin appears poised for further volatility. As mentioned in prior InvestorPlace articles, I sounded the alarm regarding BTC printing what looked like a head-and-shoulders pattern. Back when I first mentioned this dynamic, the pattern could have led to multiple interpretations.
However, with the Binance development implying more downside (again, due to the loss of credibility factor), Bitcoin may have the downside catalyst to create the “head” in the aforementioned chart formation. Following a possible downside event, Bitcoin might pop back up again to form the second “shoulder.” However, with the fundamentals and the technicals seemingly aligning with each other, I would approach BTC and other cryptos extremely carefully.
As with the leader of cryptos above, Ethereum (ETH-USD) presents significant concerns for bullish investors right now. Trading at about five or six bucks above the $1,800 level, ETH is barely holding onto its psychological support line. Given the downside pressures, though, investors should be careful about too heavy a wager.
In the trailing 24 hours, Ethereum slipped over 4%. Over the trailing one-week period, it gave up nearly 5% of market value. Similar to its number-one ranked rival, Ethereum also appears to be in the middle of a head-and-shoulders pattern. However, the key difference is that bullish traders appear determined to extend the head, thus breaking the pattern’s bearish implications.
Nevertheless, I’m not entirely sure the effort will be successful. With the SEC suing Binance, the ripple effect could create a chill among all cryptos. In other words, blockchain assets may be valuable. However, the implied lack of velocity of the decentralized market could devastate sentiment. For conservative, risk-averse investors, the better approach may be to wait. Circumstances don’t seem conducive to aggressive exposure to cryptos.
Perhaps one of the most frustrating exercises associated with trolling is “whataboutism.” For example, if you support an initiative protecting honeybees, whataboutism may be a question about what you’re doing about nuclear weapons proliferation or the plight of polar bears. In other words, this logical fallacy assumes that the existence of supposedly bigger problems in the world negates your original initiative or argument.
However, for Tether (USDT-USD) – one of the cryptos labeled as stablecoins – whataboutism represents a significant threat. With virtual currencies coming under fire, investors may question the stability of stablecoins. Last year, we’ve seen the failure of one popular stablecoin and witnessed the conspicuous value erosion of another. Increasingly, with controversies affecting the blockchain ecosystem, holding wealth in digital assets appears imprudent.
To be fair, Tether at the moment appears to be fine, holding its one-to-one peg with the dollar. In addition, I see no evidence that a failure is imminent. At the same time, though, investors have so many better options, including holding boring government bonds. Therefore, I would also be cautious about USDT.
Obviously, with the US SEC lawsuit against Binance, we must talk about the blockchain asset undergirding the platform. As you’d expect, BNB (BNB-USD) overall suffered the worst damage among cryptos ranked in the top 10 by market capitalization. Specifically, in the past 24 hours, BNB dropped over 9% of market value.
To be sure, this loss isn’t the absolute worst within the top 10 most valuable cryptos. However, in the trailing seven days, BNB ended up losing nearly 12%. As of this writing, no other virtual currency suffered a double-digit loss in the trailing week. While the red ink might tempt speculators seeking a discount, market participants may want to exercise prudence.
With BNB suffering an uppercut to the jaw on Monday, its present price took it just below the $278 support line that was held in March (during the regional banking crisis). Unfortunately, with BNB struggling under a headwind specific to cryptos, I don’t have confidence that substantive bullish support will emerge. For conservative investors, the smarter move may be to hold off until the dust settles.
While BNB unsurprisingly suffered the worst among cryptos, XRP (XRP-USD) somewhat benefitted from the disaster. To be fair, over the past 24 hours, XRP found itself down almost 6%, in sympathy with other virtual currencies. However, when considering the trailing week, XRP managed to gain nearly 3% of market value. Also, in the trailing month, XRP gained 10%. In contrast, Bitcoin fell about 11% during the same period.
Of course, unlike other cryptos, XRP has an opportunity to set a legal precedent. As you probably know, the SEC sued Ripple Labs – the creator of the XRP digital asset – for skirting securities law. Consistently, Ripple defended itself, asserting that XRP really is a cryptocurrency and thus doesn’t fall under securities-based regulations and protocols. In a way, XRP could fly above its blockchain competitors.`
Still, such an outcome means that Ripple must be victorious in the underlying lawsuit. To be sure, blockchain advocates appear confident that Ripple will come through. Unfortunately, you can’t take anything for granted in the legal sphere, which adds ambiguity to XRP.
Theoretically, because Dogecoin (DOGE-USD) operates outside of the typical blockchain ecosystem – where the emphasis centers on fun instead of serious objectives – DOGE may appear insulated from broader concerns impacting cryptos. Unfortunately, such a notion did not pan out for the meme-coin. Instead, it incurred losses parallel to its virtual currency peers.
In the past 24 hours, Dogecoin incurred a loss of almost 8%. During the trailing seven days, DOGE gave up nearly 9% of its equity value. What’s worse, unlike many other cryptos, DOGE happened to be trading below both its 50-day and 200-day moving averages throughout most of last month. With the recent volatility, Dogecoin sits in a rather precious position.
Right now, the digital asset trades hands for approximately 6.67 cents. Its 50 DMA clocks in at 7.55 cents while its 200 DMA stands at 8.09 cents. Presumably, the bulls need to make a decisive show of force right now. Otherwise, there’s only limited support at 6.5 cents, thus risking further downside action.
Easily one of the most popular alternative cryptos or altcoins of 2021, Solana (SOL-USD) at its peak commanded a price tag of nearly $260. Unfortunately, this lofty perch didn’t last long. Soon, an aggressively hawkish monetary policy devastated Solana as it did other virtual currencies. At the moment, SOL trades hands at just under $20.
Even with the massive erosion from the peak, Solana arrives at another critical juncture. First, in the past 24 hours, SOL lost over 9% of its market value. In the trailing one-week period, it incurred red ink to the tune of 4.4%. However, the latest volatility in the crypto space saw SOL sandwiched between its 50 DMA and 200 DMA. Prior to the Binance lawsuit news, SOL managed to poke its head above its 50 DMA, an encouraging sign. However, the fallout now puts Solana right above its 200 DMA. Therefore, the bulls need to come in to inject confidence. Otherwise, weak hands might cause technical damage.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, and XRP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.0.07