Crypto assets shrug off SEC scrutiny, recovering from June lows

Since early June, the SEC has been on the warpath, targeting a number of companies key to the crypto economy and declaring that a host of digital assets are unregistered securities.

Despite the aggressive posturing, the market has largely rallied in the wake of regulatory storm clouds, pushing the total cryptocurrency market cap up 13.3% since June 6, with numerous assets dubbed securities recovering from monthly lows. 

The SEC on June 5 announced charges against a number of Binance entities, as well as charges against Binance founder Changpeng Zhao. The next day, the regulator also sued Coinbase, alleging the publicly traded company was operating an unlicensed securities exchange — taking aim at perhaps the two most important centralized crypto companies in a 24-hour span.

Between the Coinbase and Binance complaints, the SEC argued that a total of 18 non-stablecoin assets were securities. 

Chart by David Canellis

Prior to the complaints, the SEC had been largely reluctant to signal which digital assets the regulator does and does not believe to be securities.

The persistent unwillingness of SEC officials to state whether the second largest crypto asset, ether (ETH), is a security is one particularly egregious example. 

Not to mention that observers pointed out that the assets the SEC claimed were securities in the complaints coincided nearly-perfectly with the assets listed on Coinbase and Binance’s homepages. 

Regardless of the perhaps arbitrary, perhaps slapdash, nature of the SEC’s assessment, markets responded negatively in the short term, with prices for large caps such as ATOM and BNB dropping 18% and 24%, respectively, in the days after the complaint.

Meanwhile, Coinbase stock — which the SEC permitted to be listed on American exchanges April 2021 as a registered security, despite later concluding Coinbase was operating as an unregistered securities exchange — likewise faltered, falling as much as 18% in premarket trading June 6. 

Partial recovery

Since June 6 lows, however, nearly half of affected assets have fully recovered, with the cohort of 19 assets in the green 70 basis points on average at the time of publication.  

Leading the way: SOL and Coinbase’s COIN, up 27% and 51%, respectively. 

Laggards BNB and SAND, meanwhile, dragged the basket down, remaining 18.5% and 12.6% in the red. Eleven of the 19 remain negative since the complaints, with 10 within a 5% margin of their June 6 price. 

On Thursday, the SEC charged Celsius Network Limited with fraud and unregistered securities sales. Despite Celsius undergoing an already-lengthy bankruptcy process, and now facing a $4.7 billion FTC fine, CEL has improbably rallied nearly 20%. 

Later the same day, a New York judge ruled in a long-standing lawsuit from the SEC that Ripple’s XRP cannot be considered a security in secondary sales on exchanges, but simultaneously that institutional sales of XRP could be considered securities offerings.

In total — adding Celsius’ CEL and XRP to a basket of equally-weighted COIN and the assets the SEC recently labeled securities — the “post SEC enforcement index” would be up 3.5% from the announcement of SEC action against each asset as well as the ruling on XRP. 

In short, as the market digests recent SEC actions, enforcement appears increasingly toothless — at least when it comes to impacting digital asset prices.

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