Week 23, 2023 - Weekly Market Outlook

TL:DR

• U.S. regulators have sued crypto giants Binance and Coinbase.
• Binance allegedly inflated trading numbers and mishandled customer money.
• Coinbase is accused of offering unregistered securities.
• Lawsuits could disrupt the crypto market but may also lead to clearer regulations.
• Despite U.S. issues, crypto could thrive in more lenient regions like Asia.
• Growth in Liquid Staking Derivatives (LSDfi) market was highlighted.
• Analysis of Bitcoin and Ethereum 
• DeFi sector overview
• Review of the week's top gainers and losers in crypto.

Introduction

Cryptocurrency exchanges have come under increased scrutiny in the United States. Recently, two of the largest platforms, Binance and Coinbase, are now in the crosshairs of U.S. regulators. With lawsuits filed against these platforms, the landscape of the cryptocurrency industry may be set for a significant shift. This article will delve into the details of these lawsuits, their implications on the crypto market, and how it all paints a bigger picture of the regulatory challenges that this burgeoning industry faces. While it may be a bumpy ride, this might just be a pivotal moment leading to a stronger, more regulated, and mature crypto industry. As these major events unfold, it's clear that the world is watching. We round off our market outlook with a detailed examination of the crypto market data, the DeFi sector, and the best and worst performers of the week.

Binance sued by SEC

On Monday, Binance, the world's largest cryptocurrency exchange, and its CEO Changpeng Zhao were sued by U.S. regulators. They claim that Binance used misleading methods to operate and this caused the value of Bitcoin to drop to a three-month low. The U.S. Securities and Exchange Commission (SEC) filed the lawsuit with 13 charges against Binance, Zhao, and the company running its U.S. exchange. They claim Binance falsely increased its trading numbers, used customer money wrongly, didn't stop U.S. customers from using its platform, and lied to investors about its market monitoring methods.

The SEC also claims that Binance and Zhao, who is a billionaire and a leading figure in the crypto industry, secretly controlled customer assets. They claim Binance used U.S. businesses to avoid U.S. laws, as reported by Reuters in its recent investigations into the exchange. From 2020 to June 2022, the SEC says a trading firm owned by Zhao, called Sigma Chain, falsely increased the trading volume of cryptocurrency securities on Binance's U.S. platform. This firm reportedly spent $11 million from an account on a yacht.

SEC Chair Gary Gensler said in a statement that Zhao and Binance had been deceptive, had conflicts of interest, failed to disclose information, and avoided the law. In response, Binance said they will strongly defend their platform and added that the SEC can't do much as Binance is not a U.S. exchange. They assured users that their assets are safe and secure on Binance and its U.S. platform. Binance said it has cooperated with the SEC from the beginning and disagrees with the SEC's allegations.

Bitcoin's value dropped by 6% after the news came out, reaching a three-month low. Binance's own cryptocurrency, BNB, also fell by more than 5%. This lawsuit could hurt Binance's position in the market, as they processed around $65 billion in trades daily last year. Market analyst Ed Moya believes this could be very damaging for Binance.

The SEC lawsuit is just one of many legal problems Binance has faced recently. They were sued by the U.S. Commodity Futures Trading Commission (CFTC) in March for running an illegal exchange and a fake compliance program. Binance is also being investigated by the Justice Department for possible money laundering and sanctions violations. Despite these issues, Binance insists that its customer funds are separate from its corporate revenues. They denied mixing customer deposits and company funds, claiming users who sent money to the account were buying Binance’s bespoke dollar-linked crypto token.

The SEC went after Coinbase

The U.S. Securities and Exchange Commission (SEC) is taking action against cryptocurrency companies, including Coinbase Global Inc. The SEC says Coinbase has been running an illegal exchange and offering unregistered securities, which are certain types of cryptocurrency. This could make it more difficult for people in the U.S. to trade cryptocurrencies.

This action comes after SEC Chair Gary Gensler stated that most cryptocurrencies should fall under the SEC's control. This could make it more difficult for the cryptocurrency industry to operate. At the same time, U.S. regulators are warning banks to avoid cryptocurrencies because they could pose risks to the financial system. This could also make it harder for people in the U.S. to invest in cryptocurrencies.

Coinbase is a big company in the U.S. and it's publicly traded. After the lawsuit was filed, the value of the company's stock dropped by 12%. This means that the company is now worth $1.5 billion less. This lawsuit comes after the SEC filed a similar lawsuit against Binance, the world's largest cryptocurrency platform. These two lawsuits could have a big impact on the cryptocurrency industry. Some people believe that if the SEC's rules are enforced, it could almost completely stop the cryptocurrency industry.

The SEC says it worked with 10 states to file the lawsuit against Coinbase. Gensler believes that traditional financial markets shouldn't be undermined by cryptocurrencies, which he thinks are trying to avoid regulation. Coinbase's CEO, Brian Armstrong, wasn't accused of any wrongdoing in the lawsuit. Despite the SEC's claims, Coinbase's top lawyer says that the cryptocurrencies they offer are not securities.

The SEC wants Coinbase to follow the laws that apply to securities and give up any profits they made illegally. The SEC also says Coinbase has acted as an exchange, broker-dealer, and clearinghouse without registering with the SEC for those roles. Many people are watching closely to see what will happen with this lawsuit. A similar lawsuit against Ripple Labs Inc. in 2020 claimed that its XRP token is a security and subject to SEC regulation. A ruling, in that case, is expected this year.

Crypto is Global 

These lawsuits against Binance and Coinbase are indeed major events for the world of cryptocurrencies, especially in the United States. Let's break them down.

Binance Lawsuit

The U.S. regulators have slapped Binance, the biggest crypto exchange globally, with a lawsuit. The SEC believes Binance cheated a bit, claiming that they increased their trade numbers artificially and didn't handle customer money properly. The SEC also accuses Binance of letting U.S. customers use its platform, which is a no-no under U.S. rules. The gist is, Binance is accused of not playing by the rules and not being truthful about how they keep an eye on their market.

While Binance is defending itself, these accusations could hurt their reputation. But, just because Binance is under fire, doesn't mean that cryptocurrencies in America are doomed. Cryptocurrencies are built on innovative technology, and they're shaking up the financial world, and people see that potential.

Coinbase Lawsuit

The lawsuit against Coinbase is a different story but still important. The SEC claims that Coinbase has been offering certain types of cryptocurrencies that are technically securities without proper registration. This is a big deal because Coinbase is a massive company in the U.S., and it's listed on the stock market. The outcome of this lawsuit could change how cryptocurrencies are regulated in America.

Even though these lawsuits are causing headaches in the U.S., they aren't problems everywhere. Other places might see things differently.

What It All Means

So, what does this all mean for crypto? Well, these lawsuits have shaken things up. People are a bit unsure about what's going to happen with cryptocurrencies, and that uncertainty can cause price swings and nervous investors. In the short term, the crypto market could get a bit bumpy.

But, these lawsuits aren't a death sentence for cryptocurrencies. Crypto is global, and they're likely to find other places to thrive. Asian countries are showing a lot of interest in cryptocurrencies, and their rules around them are currently more lenient.

Plus, even in America, these lawsuits could lead to clearer rules for cryptocurrencies and potentially help them become more mainstream. Sometimes, new and disruptive industries face scrutiny from regulators. It's part of growing up, and many believe cryptocurrencies will come out of these challenges stronger and more refined. So, even though things are tough right now, there's a good chance the future is bright for cryptocurrencies.

The Narrative

With this increased interest staking in Ethereum. Liquid Staking Derivatives have also grown. A new sector growing in the space is the Liquid Staking Derivatives finance space. 

LSDfi builds on LSDs to create new market opportunities related to staking yields, validator monopolies, slashing risks, and even validator censorship. These mechanisms provide unique opportunities for users, promoting healthy competition among validators and preventing one party from monopolizing the consensus layer.

At the core of LSDfi are LSDs, LSDs are tokens that users receive when they stake their assets. These tokens enhance network security and allow users to earn an additional yield on top of their staking rewards. An essential feature of LSDs is that they provide users with flexibility and liquidity. This means users can still reap the benefits of staking crypto without locked assets. LSDfi represents staked assets and can be traded, loaned, restated, or used for arbitrage trading on secondary markets. To learn more about upcoming projects in the space, read more here. 

Crypto Market data

This week has been a week filled with volatility. Bitcoin traded as low as $25,200. After 12 weeks Bitcoin was finally about to trade at Hight-Time-Frame (HTF) support. I had bids layered from $25,000 to $24,000 and then I was frontrant. Bitcoin is currently trading at around $26,000.  I have since removed my bids. The reason I removed my bids is because HTF are not always perfect. They usually are front ran or lower. Because of this, I have set alerts on tradingview for when BTC crosses $25,000 and will react accordingly. Until then I think the best plan of action is to go outside and touch grass.

Summer is starting and there is no point in staring at a screen for 12 hours waiting for the perfect retest. Another scenario that interest me is buying strength. Bitcoin being able to reclaim $27,000 will indicate that there is some strength in the market. Till BTC trades below $25,000 or above $27,000 there is no point in participating in the middle. 

In my opinion Ethereum looks awful. It has been steadily trending lower. Until it can break the bearish market structure, it remains an asset I'm not buying. Until $1900 is reclaimed, I plan to buy Ethereum at $1450 or $900. Till then, Bitcoin looks like the better chart.

The DeFi Sector

With Ethereum being so weak, there wasn't a chain that did extremely well. The best-performing chain of this week has been Solana. 

While Polygon outperformed Ethereum this week, it outperformed so well because of Fluxbeam. FluxBeam is a decentralized exchange (DEX) operating on the Solana blockchain. It is an experimental DEX that operates on the new Token2022 standard. The Token2022 standard is a token program on the Solana blockchain that defines a common implementation for fungible and non-fungible tokens. Token2022 allows for more efficient trades and bundling of transactions, thus saving costs. 

Best and worst performers

There isn't a narrative with the top gainers. An interesting project here is Flex. With the US sueing Binance and Coinbase, the space is in need of a CEX that isn't in the US’s crosshairs. This could be Coinflex. 

There isn't any narrative when it comes to the losers. Most of these tokens were performing well in the last few weeks and are currently having a pullback. It is worth watching if they exhibit a bullish trend.

The week ahead

Bitcoin traded as low as $25,200. After 12 weeks Bitcoin was finally about to trade at Hight-Time-Frame (HTF) support. Bitcoin is currently trading at around $26,000. In the meantime, I have set alerts on Tradingview for when BTC crosses $25,000 and will react accordingly. Until then I think the best plan of action is to go outside and touch grass. Summer is starting and there is no point in staring at a screen for 12 hours waiting for the perfect retest. Another scenario that interests me is buying strength. Bitcoin being able to reclaim $27,000 will indicate that there is some strength in the market. Till BTC trades below $25,000 or above $27,000 there is no point in participating in the middle. 

Till the opportunity presents itself, it's best to wait from the sidelines. It's also great to start researching new narratives and projects. You can read those here.