A regulatory wave is sweeping across the world of cryptocurrencies. Part of this is the assertion by the Securities and Exchange Commission that many cryptocurrencies are actually securities. Nineteen cryptocurrencies fall under the SEC’s definition and the immediate result was that their prices fell by about 20%. Since that time, a court decision in favor of Ripple Labs over the SEC gives crypto a partial victory. The court said that while professional investors fit within the SEC definition of cryptocurrencies as securities, retail investors do not. This decision has given hope to those betting on tokens labeled securities by the SEC.
Uptick in Crypto Trading of Tokens Labeled as Securities
Bloomberg reports that trading in the 19 crypto tokens that the SEC has said are securities has picked up recently. CCData reports an increase in the share of crypto trading across all of the nineteen tokens in question. They speculate that many are betting that the Ripple Labs decision will be followed by more decisions favorable to the crypto world. This has happened even though these tokens were delisted from markets like Robinhood, Bakkt, and Bitstamp. Crypto traders are saying that these tokens are being traded as a “proxy” for regulatory clarity. Our take on things is that traders are simply betting on court decisions that will follow the Ripple Labs decision and may leave transactions by retail traders out of the crypto-as-a-security picture.
Not All SEC-tainted Tokens Have Recovered
SOL, the Solana blockchain token, fell about 35% when the SEC sued Binance and Coinbase and labeled the 19 tokens as securities. It has since come back about 11%. Meanwhile, the Cardano token, ADA, has not come back at all from its 20% fall. Interestingly, virtually all tokens have fallen over the last few days along with Bitcoin in response to the promise by the Federal Reserve of higher interest rates for longer than anyone was hoping for. It would seem than even traders betting on future court decisions are still paying attention to the factors that drive crypto over the long term!
Who Is Trading the SEC-tainted Tokens?
Only a tenth of the trading in the 19 tokens in question takes place in the USA. Part of this is because they have a strong following outside of the USA and part is because exchanges outside of the USA have not delisted them. One thing always concerns us with an uptick in crypto trading. That is the incidence of crypto wash trading. Bitcoin wash trading is as high as seventy percent in some markets. We have seen no good data on wash trading of other tokens aside from Ether which competes with Bitcoin as a wash trading leader. However, we have no reason to doubt that the same issue affects other tokens. Traders who are betting on a reprieve for the nineteen tokens based on a favorable court decision have a rational basis for their trading. Anyone using technical analysis of the market, watching trading volume, and trying to make sense of ups and downs in prices needs to be careful. The uptick in trading may be as much a matter of market manipulation as it is of betting on how a court decision will go.
SlideShare Version – Betting on Tokens Labeled Securities by SEC