What happened
The crypto market has been in full meltdown mode over the past week as regulators continue to take a closer look at the market and some companies start closing down operations.
According to data provided by S&P Global Market Intelligence, Ethereum (CRYPTO:ETH) has dropped 9.5% over the past week, Dogecoin (CRYPTO:DOGE) fell 10.7%, and Shiba Inu (CRYPTO:SHIB) plunged 15.3%. There are a lot of moving parts, but there are some obvious reasons for the drop this week.
Image source: Getty Images.
So what
This past weekend, most cryptocurrencies fell after the SEC stepped up actions against the industry, including suing Coinbase and Binance and labeling many high-profile cryptocurrencies as securities. Coinbase, in particular, has said it will fight the SEC in court and has already begun doing so, but that doesn't calm all investor fears.
Binance may be the more concerning actor in the market right now. The company has already said it will leave the Netherlands after failing to get a license there, but there's concern that it's in financial trouble after delaying some withdrawals in the last few weeks. As an opaque company, it's impossible for anyone on the outside to know exactly what its balance sheet looks like and if it could handle investors pulling their assets off the exchange.
At least some of the selling over the last week was just investors fleeing assets or exchanges they thought were risky. But that's enough to move the market.
On a more fundamental basis, we saw BlackRock file for a new Bitcoin ETF that could make its way to the market soon. This indicates that there's still interest in the biggest institutions investing in the crypto market. But that's not helping valuations today.
Now what
The global battle over the future of cryptocurrencies has only begun, and it's certain to get more heated. Right now, the U.S. seems to be attacking cryptocurrencies at every turn, but at the same time, Hong Kong and Europe are creating regulatory frameworks to attract developers in crypto and blockchain technologies.
This battle will likely take years to reach some kind of endgame, and we don't know what that end result will be. As a result, some people have simply sold their crypto to take risk off the table, which is understandable, especially in the U.S.
While this is certainly a negative in the short term, these lawsuits and any potential new laws around the world will provide the crypto industry with some clarity in the future. That will likely increase the number of use cases for crypto in the future, especially if some countries build robust rules where innovation can flourish. But until those use cases and users emerge, we may be in for an extended crypto winter.
