What happened
Across the board, this has been a tough week for the crypto industry. A long-anticipated legal action from the Securities and Exchange Commission (SEC) against Coinbase (COIN -0.34%) was even more sweeping than some expected, and the regulator's moves may bring down other big players like Binance (which was also targeted in an SEC lawsuit).
In response to the recent news, a host of high-profile tokens have dropped. From last Friday's close to noon today, Solana (SOL -3.03%) fell by 11.3%, Polygon (MATIC 1.87%) dropped 14.2%, BNB (BNB 0.25%) lost 14.7% of its value, and Cardano (ADA 0.03%) fell 16.3%. Those are just a few examples -- the full list of falling cryptocurrencies is much longer.
Image source: Getty Images.
So what
The SEC has charged Coinbase and Binance with violating securities laws, including offering unregistered securities and operating unregistered securities exchanges. The SEC's actions were not unexpected, but the list of tokens that it asserts are actually securities includes Solana, Polygon, BNB, Cardano, and dozens of others.
Coinbase has said it will fight the legal actions while simultaneously lobbying Congress to pass new laws that would clarify these matters. Binance, which isn't based in the U.S., is in a tougher position, and it is already expected to cut off U.S. deposits as early as next week.
Complicating matters further, investing and trading app company Robinhood has said it tried to register as a special purpose exchange for digital assets, but that the SEC gave it the cold shoulder.
Are regulators trying to shut down crypto in the U.S.? Will clarity come out of this lawsuit? We don't have answers yet, but this week, it looks like traders sold simply because they didn't like the direction that the risk/reward balance was moving in.
Now what
The level of uncertainty about the outlook for crypto in the U.S. has never been higher, but this is a global industry. Companies and cryptocurrencies may be shut down here, but in countries such as the U.K., Hong Kong, and India, more crypto-friendly laws are being passed. The industry will move forward, but the ride will be bumpy.
One positive outcome from these lawsuits is that eventually, there will be clarification about what is and isn't a security in the U.S. That may be decided in court, or these suits may drive Congress to take action. Either way, crypto developers and blockchains will get a better understanding of what they can and can't do legally in the U.S. The problem is, that clarification may take years to arrive.
For now, it looks like the selling pressure has continued and that's on top of the reduction in liquidity that's happened over the past year in crypto. While this isn't good news in the short term, I do think that the long-term future looks bright for the companies and blockchains that can get their products to mass adoption.
