Crypto markets inched higher on Wednesday as traders shook off the regulatory troubles of Binance and Coinbase (COIN), two of the largest crypto exchanges by trading volumes, in a move that suggested bullish strength for major tokens.
Bitcoin (BTC) and dogecoin (DOGE) rose 5% in the past 24 hours to lead gains among majors. Litecoin (LTC), XRP and shiba inu (SHIB) jumped as much as 4%, while the total crypto market capitalization rose 3.3% to $1.12 trillion.
The bounce reversed losses for traders reeling from a record liquidation event on Monday, when over $293 million worth of token-tracked futures products were liquidated.
Liquidation occurs when an exchange forcibly closes a trader’s leveraged position due to a partial or total loss of initial margin. It happens when a trader is unable to meet the margin requirements for a leveraged position (fails to have sufficient funds to keep the trade open).
Large liquidations can signal the local top or bottom of a steep price move, which may allow traders to position themselves accordingly.
The reversal came as traders likely shook off long-term implications of regulatory troubles for influential exchanges in the U.S, with some tokens termed as a security. A security is a negotiable financial instrument that represents some type of financial value, usually in the form of a stock, bond, or option.
In separate filings on Monday and Tuesday, the U.S. Securities and Exchange Commission (SEC) charged Binance and Coinbase with selling of unlicensed securities in the country. The charges came despite a lack of regulatory clarity from the SEC on whether crypto tokens can be considered securities. The SEC has not given any official legal definitions to token issuers and is yet to respond to a petition from Coinbase seeking clear rulemaking definitions.
BNB coin (BNB), Solana's SOL, Cardano's ADA and Polygon's MATIC, tokens alleged as securities in multiple filings earlier this week reversed losses as well, but were ultimately trading at a 3% haircut compared to Tuesday.
As such, some market observers suggested that crypto majors termed as securities in the SEC filings could see near-term turbulence.
“We’ve seen somewhat of a bloodbath for altcoins. Most likely this is due to the fact the SEC’s lawsuits name a basket of altcoins as securities, while not categorizing bitcoin and ether in the same class,” said Jeff Mei, COO of crypto exchange BTSE, in an emailed statement. “And in general crypto traders seem to be fleeing to the relative safety of the top cryptos by market cap.”
“It’s possible we’ll continue to see this bifurcation of crypto markets, with the blue-chip bitcoin and ether holding ground, but with continued uncertainty for the majority of altcoins,” Mei added.
Some say the filings strengthened the value proposition of bitcoin as the largest cryptocurrency, alongside the second largest cryptocurrency ether (ETH), was not explicitly termed as a security by the SEC.
“The fact that the SEC did not mention bitcoin anywhere in its filings against Binance and Coinbase also underscores the SEC’s previously stated position that bitcoin is not a security and thereby not under the agency’s purview,” shared Alex Adelman, CEO of bitcoin rewards app Lolli, in a statement to CoinDesk.
“The agency’s enforcement actions against select tokens as unregistered securities may continue to work in bitcoin’s favor, as investors increasingly shift their capital into bitcoin as a fundamentally secure, sound, and independent store of value,” Adelman opined.