Crypto rocked

On Monday afternoon, after news surfaced that the U.S. Securities and Exchange Commission was suing crypto exchange behemoth Binance – reigniting fears surrounding the industry’s underpinnings and the potential for an even more heavy-handed regulatory onslaught still to come – crypto’s biggest asset, Bitcoin, fell sharply, from $26,750 to as low as $25,400.

As of Tuesday at 6:40 a.m. (EST), BTC had lurched back toward $25,800 after jerky knees returned to more stationary-prone positions.

Rumors about a pending action against Binance have been swirling for months. So the news itself "wasn’t exactly surprising,” as Bob Ras, co-founder of Sologenic, told CoinDesk.

Meanwhile, blatantly disregarding a sector-wide sell-off was Kava, a layer-1 blockchain aiming to harmonize Cosmos and Ethereum; the Kava chain’s native KAVA is the 72nd-largest coin in terms of market value, per CoinGecko. KAVA gained 9% in 24 hours to reach $1.12. Last month, KAVA soared 40% ahead of a mainnet upgrade. But beyond some technically bullish moving average harbingers, it's not quite clear today what specific catalyst has sent KAVA on its incongruous joyride.

The only other asset we saw even faintly blinking green was Quant (+1%).

Binance, as well as its affiliates, including Binance.US, and its founder/CEO, Changpeng "CZ" Zhao, all violated multiple securities laws, declared the SEC in a landmark suit filed Monday. The agency’s allegations are spelled out in detail. And they are numerous.

The federal regulator says Binance: unlawfully offered trading, brokerage and clearing (not to mention staking) on its platforms without registering; engaged in unregistered sales of cryptos; commingled customer/company funds; made misrepresentations to investors about controls they claimed to have implemented; secretly inflated Binance.US volume; and purposefully worked to evade U.S. regulatory oversight while simultaneously providing securities-related services to U.S. customers, "putting the safety of billions of dollars of capital at risk and at Binance’s and Zhao’s mercy."

"We are operating as a f-king unlicensed securities exchange in the USA," Binance's head of compliance told a colleague in 2018, according to the suit.

Of the 13 charges, SEC Chair Gary Gensler chimed in: "Zhao and Binance entities engaged in an extensive web of deception, conflicts of interest, lack of disclosure, and calculated evasion of the law."

Binance, for its part, in a statement, said the suit is baseless and that it intends to defend itself. And that technically speaking the SEC doesn’t have jurisdictional right of way.

Binance.US, in an official tweet, described the suit as "the latest example of regulation by enforcement."

On its blog, Binance shared a statement saying, in part, that it "actively cooperated with the SEC's investigations” in the pursuit of some form of settlement and that the company had “worked hard to answer their questions and address their concerns.”

Binance's native BNB as of this morning still enjoyed an enormous market capitalization of roughly $44 billion. BNB ranks as CoinGecko's 4th-largest digital asset. As of Tuesday, at 7:25 a.m. (EST), BNB was $278, down 7.2% in 24 hours.

Troublingly, in that same period, the outflow of funds from Binance, stemming across all protocols, was close to $1 billion, with the bulk of that amount connected with Ethereum-based tokens (Cointelegraph).

ETH not being fingered in the SEC suit as unlawful was in itself hailed as a silver lining as the regulatory blast radius was being assessed around the globe throughout the night. Overnight, the second-largest digital asset fell 3% to about $1,815.

However, a slew of other tokens did get singled out as securities that Binance sold sans proper permission. These include Solana (SOL), Cardano (ADA), Polygon (MATIC), Algorand (ALGO), Filecoin (FIL), Cosmos (ATOM), Sandbox (SAND), Axie infinity (AXS), and Decentraland (MANA). This crop of coins fell sharply in the past 24 hours, with losses ranging from -5% to -14%.

The total crypto market is now $1.14 trillion, having lost 3.5% in the past 24 hours, according to CoinDesk.

The digital currency industry is right back on its heels, somewhat stunned, but demonstrating, once again, that it can take a punch.

“Unless any major developments impact Binance’s functioning, we don’t think the market is likely to lose a lot more," Joe DiPasquale, the CEO of BitBull, told CoinDesk.

"I suspect that we’ll likely be in for a gradual recovery here,” Sologenic's Bob Ras said. "I don’t think there are nearly as many forced sellers now as there once were," he said, referring to last year's sudden failures of Luna, Celsius and FTX.

Perhaps nothing is too big to fail when it comes to crypto.  Or too big to kill. That's the cruel, unambiguous message regulators sent on Monday, said New York magazine. "The allegations are the most serious made by the federal government against a standing crypto giant," the magazine said.

In a 12-month period packed with busts, manhunts, civil enforcements, cascading failures and overnight implosions, Binance being taken to the SEC's woodshed is just another black eye. If "wild west" ever did adequately describe the nature of crypto's nascent era, maybe now the phrase can be retired.

Federal regulators in the role of frontier hanging judges are pushing crypto projects to clean up their acts, and pushing them straight out of the U.S., and from this perspective, Ras added, "this is clearly becoming a net negative for the U.S. economy and innovation more generally.”

Maybe interest rates will go down soon. Maybe the metaverse takes off (Apple thinks so). Hey, crypto could be in for one hell of a summer.

"For the moment, investors are feeling jittery," Sologenic’s Ras said. "It will take time to restore confidence."