The United States Is Cracking Down on Cryptocurrencies, While Hong Kong Is Embracing Them. What Should We Do?

Last week (6.5-6.11), the cryptocurrency market experienced a significant decline in market capitalization, dropping from $1.13 trillion to $1.05 trillion, a decrease of 7%.

Correspondingly, market sentiment has shifted from neutral to fearful, dropping from 53 to 47. It can be seen that there is now a mild panic.

Trends of Cryptocurrency Total Market Cap and Fear Greed Index from June 5th to June 11th, 2023; Source: MacroMicro

Mainstream Cryptocurrencies performed poorly last week, with a general downward trend. Among them, Ripple(XRP) had the best performance, rising 2.1%; Cardano (ADA) had the worst performance, falling 22.6%.

In addition, Bitcoin (BTC) rose by 0.7%, while Ethereum (ETH) fell by 3.2%. It can be seen that compared to other mainstream currencies, BTC and ETH have shown greater resilience to market downturns.

Price fluctuations of mainstream cryptocurrencies from June 5th to June 11th, 2023; Source: MacroMicro

On June 5th, the US Securities and Exchange Commission (SEC) filed 13 charges against Binance and its founder Changpeng Zhao, including operating an unregistered exchange, selling unregistered securities, providing false information about trades, engaging in money laundering, and misusing customer funds. Additionally, the second-largest cryptocurrency exchange, Coinbase, was also charged by the SEC for operating an unregistered crypto asset securities business.

Stimulated by the news, the stocks/tokens of both platforms plummeted. Among them, BNB fell more sharply, dropping from around $300 to $220, a 27% drop. In addition, Bitcoin (BTC) and Ethereum (ETH), worth over $4 billion, were withdrawn from Binance and Coinbase.

Price trends of Binance Coin (BNB) and Coinbase stock from March to June 2023; Source: TradingView

Mitrade analyst: In such regulatory turbulence, investors are the biggest victims and have to bear the losses from the decline. However, the US regulatory crackdown on cryptocurrency exchanges has only entered a new stage and is not over yet, leaving many uncertainties for the future. Therefore, BNB may further decline and investors need to take precautions or hedge measures.

In addition, if you have a large amount of assets concentrated in these two exchanges, you should diversify by storing them in other exchanges or wallets to avoid potential significant losses. It should be noted that while the SEC may be acting out of self-interest to suppress exchanges, they could potentially uncover some less than ethical behavior, so it's essential to be cautious about exchange black swan events.

While charging Binance and Coinbase, the US SEC has classified 23 cryptocurrencies as securities, including Binance Coin(BNB), Cosmos (ATOM), Solana (SOL), Cardano (ADA), Polygon (MATIC), The Sandbox (SAND), Decentraland (MANA), etc. As of June 12, 2023, a total of 67 cryptocurrencies with a market value of over $100 billion have been categorized as securities by the US SEC, accounting for approximately 10% of the total market capitalization of about $10 trillion.

Mitrade analyst: What does it mean when these cryptocurrencies are defined as securities by the SEC? From an academic perspective, it actually has little impact on ordinary investors. However, from a regulatory perspective, the impact is significant.

The 67 types of cryptocurrencies mentioned above will be excluded from the regulatory system, and regulated exchanges must delist them. Companies within the regulatory system are also prohibited from involving with these cryptocurrencies. For instance, on June 10th, the U.S. online brokerage platform Robinhood announced the delisting of Cardano (ADA), Polygon (MATIC), and Solana (SOL) due to the SEC incident, causing market panic selling with all three coins dropping over 20%.

Price trends of ADA, MATIC, and SOL from 2022 to present; Source: TradingView

Ripple (XRP) has faced challenges in the past, including being delisted by Coinbase and a sell-off by users, which suppressed its price during the previous bull market. Similarly, virtual currencies classified as securities are likely to face similar fates, with old users selling off and new users being hesitant to buy in, leading to prices remaining at the bottom and underperforming the market. Unless they can reach a settlement with the SEC, it will be difficult for them to perform well in the future. Therefore, it is important to keep an eye on the actions of the SEC.

On June 5th, Hong Kong's Financial Services and the Treasury Bureau (FSTB) Secretary, Christopher Hui, announced that the Hong Kong Monetary Authority is developing a regulatory framework for stablecoins and plans to conduct the second round of public consultation this year. On June 10th, Hong Kong Legislative Council member and National Committee member of the Chinese People's Political Consultative Conference, Wu Chi-wai, welcomed global virtual currency exchanges to apply for licenses and be listed in Hong Kong.

Mitrade analyst: In sharp contrast to the strong crackdown on cryptocurrencies by US regulatory agencies, Hong Kong enthusiastically embraces them and has taken many positive measures such as allowing retail trading and licensing of exchanges. Currently, although the influence of the United States is much greater than that of Hong Kong, leading to stronger bearish performance than bullish, there is a general decline.

However, there's no need to be too pessimistic about this situation, as one side has already created a haven for the survival of cryptocurrencies. Additionally, regulatory changes for cryptocurrencies are not unprecedented, but rather another major shift. Previously, China was a gathering place for cryptocurrencies, but on September 4, 2017 (known as the "94 Storm"), it implemented policies that completely banned cryptocurrencies, leading to a market crash and high risk of many coins becoming worthless. The despair of investors at that time far exceeded that of the current situation.

In fact, without such major changes, new opportunities would not be possible. Without a crash, how could one buy cryptocurrencies at even lower costs? Therefore, one should not be pessimistic about this, but rather feel fortunate and learn to seize new opportunities!