Crypto's weekend sell-off compounds investor jitters

Market already on edge after US lawsuits against Binance and Coinbase Global

Securities and Exchange Commission chair Gary Gensler says most tokens are subject to the agency’s investor protection laws. Reuters

A sharp weekend sell-off in crypto led by a slump in smaller digital tokens set off a fresh wave of anxiety among investors, following a week in which a crackdown by the US Securities and Exchange Commission on the sector gained significant pace.

Altcoins including Cardano’s Ada tumbled as much as 25 per cent on Saturday before paring a sliver of the decline, while tokens including Solana’s Sol, Polygon’s Matic and Avalanche’s Avax posted double-digit percentage drops.

Bitcoin, the largest digital asset, was down almost 3 per cent as of 4.15pm on Saturday in New York. Second-ranked Ether earlier shed more than 6 per cent to hit its lowest level since late March.

The crypto market is notorious for big swings at weekends, when activity is typically thinner and even small trades can make an impact.

This time around, investors were already on edge after the commission launched lawsuits earlier in the week against market leaders Binance and Coinbase Global, and flagged a throng of altcoins as unregistered securities, including Sol, Matic and Ada.

“Altcoins have been in the spotlight” ever since the commission categorised some of these tokens as securities in recent lawsuits, said Gordon Grant, co-head of trading at Genesis.

“Coming into this weekend, as we got to that witching-hour time, these alts suddenly came under fire.”

Jitters were compounded by speculation over a rumour that a fund sold its entire holdings of such tokens.

An image was circulated on Twitter showing a fake news article covering the liquidation, though market analysts said there was little reason to believe the rumour was true.

Further speculation of selling pressure around Robinhood Markets' decision on Friday to drop certain altcoins from its platform also fed the negative sentiment.

Noelle Acheson, former head of market insights at Genesis Global Trading, said there may be another cause for the price drop, such as a large holder or fund exiting its positions or an attempt to drive prices lower to cover shorts.

“Early Saturday morning UTC time is not a good time to exit unless you want to really move the price,” Ms Acheson wrote in her newsletter on Saturday.

“Today’s move is not good news, and not just because of the lower prices. It reminds investors how thin the market currently is, and how prices could be manipulated.”

A designation as an unregistered security could make tokens harder to trade if exchanges shy away from listing them for fear of irking the commission.

Robinhood said on Friday it will drop Solana’s Sol, Cardano’s Ada and Polygon’s Matic from June 27.

“Regardless of if the physical tokens held by Robinhood have moved or not, the fact that at end of month the tokens will be sold if not moved sets in motion a very easy trade for folks to pre-position for,” Spencer Hallarn, a derivatives trader at crypto investment company GSR, said.

“On top of that, there has been a general withdrawal of liquidity from the market as various folks have retrenched.”

The past week’s events featured a momentous few days of enforcement actions against the crypto industry in the US.

The commission accused Binance and its founder Changpeng “CZ” Zhao of mishandling customer funds, misleading investors and regulators, and breaking securities rules.

Binance has called the commission's action “disappointing” and said that it intends to defend its platform “vigorously”.

Coinbase has disputed the commission’s allegation that it is running an illegal exchange and said it’s prepared to take the fight all the way to the Supreme Court.

BNB, a crypto asset which can be viewed as an arbiter of sentiment towards its original creator Binance, declined more than 6 per cent on Saturday to reach the lowest level since last July.

While US regulators view Bitcoin as a commodity, commission chair Gary Gensler has long said most other tokens are subject to the agency’s investor protection laws and that trading platforms should register with the regulator.

But labelling specific tokens represents a tougher approach, part of a clampdown on digital assets this year following a rout in 2022 and a series of blow-ups, including the bankruptcy of the FTX exchange.

“US regulators have made it clear they want to rein in crypto within their borders,” Michael Safai, co-founder of London-based Dexterity Capital, wrote on Saturday.

“Investors need to be wary as more western players step away, leaving markets thin and subject to sudden volatility spikes.”