Crypto Market Sinks Following Ether Security Label by NYAG

Digital assets took a beating Thursday following revelations New York Attorney General Letitia James had called out ether as a security in a lawsuit against crypto exchange KuCoin.

James filed a lawsuit against Seychelles-based KuCoin, alleging a breach of securities laws by providing certain token offerings which include ether, luna and the TerraUSD stablecoin.

KuCoin has been operating in New York without registering itself as a securities and commodities broker-dealer, James said in the suit.

The NYAG’s claim could set a precedent in the broad digital asset sector and cause a ripple effect to other jurisdictions, Jeff Yew, founder of digital asset manager Monochrome told Blockworks.

Blue chip digital assets bitcoin (BTC) and ether (ETH) both fell more than 8% in a flurry of trades that dragged prices to their lowest point in almost two months. The pair last traded around $19,800 and $1,390 near their daily lows.

The recent sell-off in ether, in particular, is likely coming from Coinbase, Ho Chan Chung, head of marketing at on-chain analysis platform CryptoQuant told Blockworks.

CryptoQuant’s Coinbase Premium Index for ether has dipped to levels last seen on Jan. 18 at -0.01, indicating a greater level of selling pressure from the publicly-traded exchange Chung said.

The total market capitalization of the crypto market has also dipped below $1 trillion for the first time since Jan. 14, after shedding 7.8% of its value to $960 billion, CoinGecko data shows.

Regulation through litigation

Ever-increasing pursuits of regulation through enforcement and litigation from leading US agencies, namely the Securities and Exchange Commission (SEC), are forcing a rethink to what had been a good run for digital assets this year.

Crypto is now entering its “Passion of the Christ” phase, Jehan Chu, founder of Hong Kong trading firm Kenetic, told Blockworks.

“The SEC and NYAG are doing their best to crucify the industry once and for all against a backdrop of an increasingly hawkish Fed and contagion now infecting banks like Silvergate and Silicon Valley Bank.”

Rich Falk-Wallace, CEO of crypto data analytics platform Arcana agrees, pointing to today’s negative move across the crypto markets as a function of several factors.

That included crypto’s lockstep moves with the US stock market, as reflected by a 1.8% decline in the SPDR S&P 500 ETF (SPY) and broad enforcement actions.

An elevated regulatory risk across liquid staking stablecoin as well as crypto bank Silvergate’s intentions to wind down its operations was also feeding the sell-off.

“The fact that the SEC has brought actions against Kraken’s liquid staking product and Paxos’ stablecoin have created the perception that more, even larger, regulatory enforcement actions are likely to be brought across the ecosystem,” Falk-Wallace said.

Silvergate announced Thursday it would fold its business following a particularly poor quarter and a run on the bank that drained it of some $8 billion in assets. 

The run was sparked by regulatory concerns around the use of its payment network to enable thousands of FTX customer transfers to flow into accounts of Alameda Research.

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