How should investors hedge against risks amid the crypto “storm”?

With the US SEC filing a lawsuit against Binance and Coinbase , the crypto market has experienced a huge shock. In the midst of panic, how should investors avoid risks? Who is the biggest beneficiary in the crypto market behind this crisis? In the lawsuit initiated by the US SEC, has the risk of the crypto market ended in the short term? In the long run, what huge opportunities does the crypto market face after the "crisis"?

As the US regulatory stick falls, how can investors avoid risks?

Since the U.S. SEC filed a lawsuit against Binance and Coinbase, there is no doubt that Binance and Coinbase have been hit hard, and funds have begun to flee in panic; in comparison, the outflow of funds from Binance is even more serious.

According to Bitpush, data from blockchain analysis companies Nansen and Glassnode showed that from Monday to Thursday last week, three exchanges, Binance, Coinbase and Binance US, had a net outflow of $3.1 billion through the Ethereum network, and a net outflow of $864 million in Bitcoin (BTC). Among them, Binance's Ethereum net outflow in four days was $2 billion. This indicator includes ETH and all Ethereum-based tokens. At the same time, Bitcoin had a net outflow of $838 million (31,868 bitcoins). Coinbase's Ethereum net outflow reached $1 billion, and the total Bitcoin net outflow was $25 million. The total net outflow of Ethereum from Binance US was $75 million. Since the SEC lawsuit, about $4 billion in funds have flowed out of Binance, Coinbase, and Binance US.

In addition to the obvious outflow of funds from Coinbase and Binance, the SEC listed 10 crypto assets as securities in the lawsuit against Binance, including BNB, BUSD, SOL, ADA, MATIC, ATOM, SAND, MANA, AXS, and COTI; in the lawsuit against Coinbase, 13 crypto assets were listed as securities by the SEC, including SOL, ADA, MATIC, SAD, AXS, CHZ, FLOW, ICP, VGX, NEXO, etc. Under long-term regulatory actions, 67 tokens have been listed as securities by the SEC. Among them, there are 2 tokens with a market value of more than 10 billion US dollars, namely BNB and XRP. There are 10 tokens with a market value of 1 billion to 10 billion US dollars, including SOL, ICP, TRX, ATOM, NEAR and other public chain native tokens. There are 11 tokens with a market value of 100 million to 1 billion US dollars, including well-known projects such as SAND, MANA, AXS, and public chain native tokens ALGO and LUNC. There are 31 tokens with a market value of less than 100 million US dollars. From the perspective of market performance, the tokens named by the SEC generally fell sharply.

So, as an investor, how can you avoid risks? According to Bitpush, through Coingecko data, after the SEC filed a lawsuit against cryptocurrency exchanges Coinbase and Binance, the trading volume of the top three decentralized exchanges (DEX) surged by 444%. In particular, from June 5 to June 7, the daily trading volume of Uniswap V3 (Ethereum), Uniswap V3 (Arbitrum) and Pancakeswap V3 (BSC) accounted for 53% of the total DEX trading volume in the past 24 hours, an increase of more than US$792 million. In addition, the trading volume on DEX Curve, which supports stablecoin trading, soared by 328%.

After the U.S. SEC filed a lawsuit against centralized exchanges, the market demand for DEX has increased significantly, and DEX may gradually move to the center of the crypto trading stage; and in terms of token performance, in the current crypto market, only Bitcoin has performed the strongest, and Bitcoin is also a non-securities token recognized by major U.S. regulatory agencies, and its risks in all aspects are relatively small.

After the fierce competition among the big players, Bitcoin may become the biggest beneficiary

This year, the Bitcoin "new cultural movement" has been developing rapidly. Then, the crypto market was regulated by the US SEC, which once again hit most crypto assets in the market, especially public chain tokens based on the PoS mechanism. After the competition among public chains, Bitcoin seems to be the biggest beneficiary.

According to BitPush, Twitter founder Jack Dorsey tweeted on June 6 that there are only three scalable anti-censorship technologies - onion routing (tor), Bitcoin, and Nostr protocol, all of which are currently in a niche market, indicating that most people in the world do not really care about censorship. Admittedly, these technologies are not currently available or easy to use, but one day things will change. In addition, Pierre Rochard of Riot Platforms commented on Coinbase's regulatory incident and said: Coinbase should transform its business back to the past and focus on Bitcoin. Jack Dorsey forwarded and commented, 100% agreeing with this statement. DCG founder and CEO Barry Silbert also tweeted that in the lawsuits filed by the US SEC, no PoW token was listed as a "security". I believe in BTC, LTC, XMR, ETC, and ZEC.

From the on-chain data, according to Glassnode data, HODLing remains the main market dynamic as determined HODLers remain steadfast in adversity, sending Bitcoin Supply Last Active Bands to new ATHs. Supply lasting more than 1 year: 68.4%; Supply lasting more than 2 years: 55.5%; Supply lasting more than 3 years: 40.1%; Supply lasting more than 5 years: 28.9%. Most notably, we can observe a significant increase in terms of more than 2 years, as a large number of tokens purchased during the great migration of miners from May to July 2021 have been stagnant and their age exceeds the maturity threshold.

CryptoChan (@0xCryptoChan) also tweeted that the daily inflow of BTC long-term holders' chips into exchanges from the OTC chain accounts for more than 0.025% of the total amount of long-term holders' chips, which is marked with red bars; less than 0.025%, which is marked with blue bars. This percentage has been very stable in the past one or two months. In the face of the recent surging regulatory wave in the United States, long-term holders have no ripples in their hearts.

What kind of "dangers" and "opportunities" will the crypto market face under the wave of regulation?

In the SEC indictment, the SEC accused CZ of claiming that the Binance.com platform does not serve Americans, but in fact CZ instructed Binance staff to assist certain high-net-worth American customers to evade control - changing IP addresses through VPNs or setting up offshore companies for KYC; in addition, CZ actively recruited American investors to trade on the Binance platform through his social media and other Internet posts to retain American investors. In addition, the SEC also accused Binance of misappropriating customer assets through Merit Peak and Sigma Chain. From the SEC indictment, the SEC's accusation materials cited many Binance internal and related executives' words, which may not be groundless. In the short term, Binance faces the possibility of having its assets frozen by the SEC.

Overall, the lawsuit between Binance and the SEC is expected to be protracted and may even go to the U.S. Supreme Court; but if the SEC really freezes Binance's assets, Binance's liquidity may be rapidly lost, after all, the United States is accustomed to long-arm jurisdiction. Once a crisis occurs in Binance, it will cause huge negative impact on the entire crypto market, and the crypto market is expected to fall overall; although Bitcoin is likely to remain strong, it is expected to fall to a certain extent. According to Bitpush, a federal judge postponed the temporary restraining order on Binance.US, and the SEC and Binance.US will continue to negotiate. It seems that the market has turned around, but the risk of Binance's assets being frozen in the United States cannot be said to be completely lifted. From the technical chart, MA200 is currently an important support level below Bitcoin, and its price is around $23,600.

In the medium and long term, the lawsuit recently initiated by the US SEC may eventually speed up the US regulatory legislation for the crypto market. In addition to Binance, the US SEC has also filed a lawsuit against Coinbase, a US listed company with a large number of users in the United States. The prosecution of this exchange may stimulate Congress to take positive action in cryptocurrency regulation. The voices of market parties are getting stronger and stronger. According to Bitpush, Coinbase CEO Brian Armstrong said in an interview that there is a power struggle between the US SEC and the CFTC, and Coinbase has been "caught in the turf war" between the two institutions. As the two sides have failed to reach an agreement on the status of cryptocurrencies as securities or commodities, the industry needs clarity. To make this clear, Congress must intervene and enact legislation. Before there is legislation, the crypto industry will rely on case law, which will appear in the lawsuit filed by the SEC against Coinbase last week.

The US legislature has also noticed the seriousness of the situation and has begun to hold hearings, which can also be regarded as providing some preparation for legislation. According to Bitpush, Patrick McHenry, Chairman of the US House Financial Services Committee, announced that a hearing entitled "The Future of Digital Assets: Providing Clarity for the Digital Asset Ecosystem" will be held at 14:00 Eastern Time on June 13 (2:00 Beijing Time on June 14). Circle co-founder and CEO Jeremy Allaire announced his testimony to be delivered at the digital asset hearing held by the US House Financial Services Committee. In his testimony, he strongly called for accelerated legislation. Jeremy said: "The measures taken by the US government in the next few years will have a significant impact on the competitiveness of the US dollar in the following decades. The Stablecoin Act is a critical legislation and the first step in creating a regulatory framework. It will also have a significant impact far beyond the digital asset market. Now is the time for the United States to lead the formulation of global rules. With the right regulatory framework, stablecoins and blockchain networks can scale to support billions of users and trillions of dollars in payment activities."

Summarize

Overall, the US SEC has two core targets for this regulation: one is centralized exchanges such as Binance and Coinbase, and the other is most PoS-based tokens; this has led to a surge in DEX trading volume, while PoW-based public chain tokens such as Bitcoin have performed relatively strongly. In addition, with the SEC filing lawsuits against Coinbase and others, due to the seriousness of the case and the fierce market controversy, it has become urgent for Congress to legislate. Ultimately, whether it is congressional legislation or court decisions, it will have a profound impact on the crypto industry, allowing the US crypto market to enter an era of "law-based" regulation. In addition, in a sense, what we are experiencing now is undoubtedly an important milestone for crypto assets and crypto markets to truly enter the traditional financial market.