The price of several altcoins fell today along with the broader crypto market on what appeared to be concerns linked to liquidity in the crypto market.
Since late afternoon yesterday, the price of the meme token Shiba Inu (CRYPTO: SHIB) has fallen more than 10%, while the price of Litecoin (CRYPTO: LTC) declined about 13% Dash (CRYPTO:DASH) lost roughly 15%.
So what
The big news that seems to be hitting the crypto sector has to do with the fact that Binance, one of the largest crypto exchanges in the world, had to temporarily pause Bitcoin withdrawals twice yesterday after the company said it dealt with intense congestion on its network.
Image source: Getty Images.
Binance did eventually resume withdrawals and said that it had adjusted its fee structure to avoid similar problems in the future. The company also said it is working to implement Bitcoin lightning network withdrawals to avoid similar problems in the future.
Part of the issue seems to be that fees on Bitcoin's blockchain network have skyrocketed in part due to many new meme tokens being minted on Bitcoin's network. This occurred after congestion clogged up Ethereum's network.
"There was so much traffic congestion and also the gas fees were so high over the weekend ... even by historical standards," Oppenheimer analyst Owen Lau told Reuters.
While it doesn't seem to have affected all crypto prices so far, the industry has seen some of its key sources of liquidity dry up. Several banks that provided fiat on- and off-ramps for crypto exchanges and institutional traders have been seized by regulators or are in the process of liquidating their assets.
Now, Binance is under pressure and there's been a lot of controversy surrounding the large U.S. crypto exchange Coinbase as well. The Securities and Exchange Commission sent Coinbase a Wells notice not long ago, telling the company that the agency intends to hit it with an enforcement action.
Coinbase Chief Executive Officer Brian Armstrong previously said that if the regulatory landscape keeps ratcheting up he may consider moving Coinbase overseas, although he recently said that Coinbase is not going to relocate.
A running debate between the SEC and the crypto industry relates to what cryptocurrencies should be considered as securities. The SEC deems many cryptocurrencies to be securities and therefore crypto exchanges are currently selling securities that are not registered with the SEC, which is illegal. The Wall Street Journal noted in an article today that crypto exchanges in the U.S. still enable people to buy 16 of the 76 cryptocurrencies the SEC considers to be securities. One of those is Dash.
Now what
For much of this year, crypto really seemed to have been moving on macro factors based on what was happening to interest rates and the strength or weakness of the dollar. But today, the move really seems more associated with this Binance incident and perhaps concern about further regulations.
I also wonder if the industry is starting to become more concerned about liquidity when you consider what has happened to these crypto banks and some of the pressure the largest exchanges are facing.
Ultimately, while I've taken some small speculative positions in a few altcoins, I'd really only recommend investors taking a position in Bitcoin and Ethereum and ignoring most of the rest. These other cryptos will likely continue to move in a correlated fashion with Bitcoin but I'm not sure if they can really be winners long term.
