Crypto Market Suffers as SEC Sues Binance and Worry Over Debt Ceiling Looms

The cryptocurrency market experienced a downturn today, following news that the SEC is suing Binance and its CEO, Changpeng Zhao. This has led to panic among investors and uncertainty in the market.

Just as Bitcoin seemed to be on the verge of a price breakout, the market took a nosedive due to the SEC charges against Binance exchange. Many analysts now believe that Bitcoin has not yet hit its lowest point. On June 5, Bitcoin's price reached a 60-day low of $25,744, with traders expressing concern that further drops are possible, as the coin had already struggled to maintain the $26,600 resistance level prior to the news.

Ethereum is also feeling the pressure, having risen above the $2,100 mark following the Shapella upgrade, only to experience a 7-day low of $1,794 on May 24. This slump coincides with cooling Ether gas fees, after May's memecoin frenzy.

Debt Ceiling Concerns Affect Risk Assets

On June 5, the SEC, chaired by Gary Gensler, filed 13 charges against Binance and its CEO, Changpeng "CZ" Zhao, alleging that Binance had deliberately disregarded U.S. securities laws, resulting in billions of dollars of profit. The lawsuit, filed in the District Court for the District of Columbia, listed 12 specific cryptocurrencies as securities.

Interestingly, one of the tokens identified was Algorand, which Gensler had praised as a "great technology" in 2019, seemingly contradicting the recent enforcement action. Binance has since issued an official response to the lawsuit on Twitter.

Disputes and mistrust around the use of digital assets have persisted, with some believing that U.S. lawmakers harbor resentment towards the crypto industry following the FTX collapse. The latest issue revolves around how centralized exchanges can utilize customer funds.

Lido Unlock Adds Pressure to Crypto Market

Currently, cryptocurrency prices remain closely correlated with the Dow and S&P 500. Major banks still anticipate a U.S. recession in 2023, which has not deterred stock indices from reaching yearly highs after the U.S. debt ceiling deal. However, the Binance debacle is driving a wedge between equities and Bitcoin.

U.S. Bank analysis, incorporating over 1,000 data points, suggests that investor sentiment regarding the current state of the economy remains low. According to Terry Sandven, Portfolio Manager, Chief Equity Strategist at U.S. Bank, "better-than-expected earnings results, particularly among growth-oriented sectors, have helped push equity prices higher."

TVL and Volume Stay Low

The Total Value Locked (TVL) metric is often used to gauge the health and sentiment of the crypto markets. DeFiLlama data shows that the TVL across all protocols fell by 1% in the past 24-hours, and has dropped by $116 billion since April 5, 2022.

In addition to the tightened market liquidity, exchange inflows indicate increased sell-side pressure without corresponding buy-side demand from stablecoins. Given the heavy macro headwinds and low volume, it seems likely that crypto volatility will persist in the near future.