During this week, cryptocurrency markets experienced significant swings following the US Securities and Exchange Commission’s (SEC) lawsuits against two of the largest exchanges in the industry, Binance and Coinbase. Interestingly, Bitcoin seems to have shrugged off those regulatory risks as it managed to erase the biggest part of its initial slump. Is this a dead cat bounce?
Regulatory pressures mount
Undoubtedly, the crypto bear market in 2022 exposed flaws and failures in several cryptocurrency projects and business models, delivering significant blows to the trustworthiness of the broader crypto space. After FTX’s collapse, investors and market participants urged regulators to impose a stricter and clearer framework for digital assets to avoid further pain. Since then, we have seen many governments across the globe intensifying their efforts towards regulating the industry, with the SEC’s latest lawsuits against two leading crypto exchanges being a significant advancement on that front.
More specifically, on Monday, the SEC filed an extensive lawsuit against the largest cryptocurrency exchange in the world, Binance, accusing it of major violations such as illegally trading unregistered securities. Furthermore, the situation deteriorated even further on Tuesday when the SEC accused Coinbase of operating as an unlicensed and thus illegal exchange. Clearly, both firms experienced significant outflows as investors continue to grapple with regulatory woes and liquidity concerns, but surprisingly Bitcoin price managed to rebound and shake off those risks, at least for now.
The latest regulatory crackdown might lead to short-term pain for digital assets, but the overall prospects for the sector might be limited in the absence of a stable and clear regulatory framework.
Cryptos extend divergence from stocks
Despite being initially regarded as assets unaffected by macroeconomic conditions, cryptocurrencies have been moving in tandem with stocks and especially tech stocks for the biggest part of their history. However, lately, this correlation seems to be weakening as investors start to price in some idiosyncratic risks and factors for each asset class.
On the one hand, equity indices have been surging higher on the back of the AI driven mania, without any recent macroeconomic developments or signs of fundamental strength backing this prolonged rally. Nevertheless, cryptocurrencies posted their first red candlestick in the monthly chart for 2023, largely pressured by the regulatory crackdown in the US.
Technical picture provides mixed signals
Taking a technical look at BTCUSD, we can see that the price posted a fresh 2½-month bottom, extending its bearish structure of lower lows from its 2023 high. However, it can also be argued that the king of cryptos is building a base around the $25,300 zone, which has acted as resistance both in August 2022 and February 2023.
If the price extends its short-term slide, it could initially face the $25,785 region, which held its ground twice in the past month. A violation of that wall could trigger a retreat towards the recent 2½-month low of $25,350.
Alternatively, bullish forces could propel the king of cryptos towards the recent resistance of $27,500, which lies very close to the 50-day simple moving average (SMA). If that barricade fails, the spotlight could turn to $28,460.
