Technical analysis

Market rebounds after SEC lawsuits spur brief panic

This week’s market turmoil, induced by the announcement of the U.S. Securities and Exchange Commission (SEC) lawsuits against Binance and Coinbase, appears to have been a momentary blip rather than a sustained downturn. While initial reactions saw panic selling, the market’s swift recovery reflects its robustness.

The SEC’s lawsuits come from its increasingly stringent scrutiny of crypto platforms. Binance, the largest cryptocurrency exchange by trading volume, and Coinbase, the leading American crypto exchange, are under regulatory fire for a variety of alleged securities law violations.

The SEC’s allegations against Binance include offering trading in securities without appropriate broker-dealer registration, while Coinbase was charged with misleading investors with its lending program, listing unregistered securities, and failing to register as an exchange.

In response to the lawsuits, panic selling was seen across the crypto space, with a stark $53 billion wiped from the market. However, as evidenced by the quick rebound in critical metrics, the market quickly regained its equilibrium.

Perpetual futures, a type of futures contract that does not have an expiry date, are crucial in the crypto space. Open interest on these contracts refers to the total number of outstanding contracts that haven’t been settled and is considered a significant indicator of the market’s health.

The total open interest on Bitcoin spiked from 379,000 BTC to 411,000 BTC on Monday. However, it was pared back to 382,000 BTC within a day, pointing to an effective market correction. CryptoSlate analysis found that this was the second-largest negative one-day change in open interest this year.

btc futures 1d change
Graph showing the open interest on Bitcoin perpetual futures from March 1 to June 7, 2023 (Source: Glassnode)

According to data from K33 Research, Binance, Bybit, OKX, Deribit, BitMEX, Huobi, and Kraken saw open interest on Bitcoin futures rise on June 5 and then decrease the following day.

daily oi change btc perpetuals
Graph showing the open interest on Bitcoin perpetual futures across exchanges (Source: K33 Research)

On June 5, the Bitcoin perpetual futures funding rate plunged to its lowest level since March, sending waves of concern across the market. The funding rate is a mechanism that encourages price convergence between the perpetual futures and spot prices, ensuring market stability.

Despite its brief dip, the rate regained its May-level stability within 24 hours, showcasing the market’s resilience.

btc perp funding rate sec lawsuits
Graph showing the BTCUSDT funding rate from April 24 to June 6, 2023 (Source: Glassnode)

Bitcoin’s spot price, a real-time market value, was the first to be hit with the news of the lawsuits, dropping to a low of $25,770. However, the bearish momentum was short-lived, and Bitcoin rebounded, returning to the $27,000 range.

btc usd price sec lawsuits
Graph showing Bitcoin’s price from May 25 to June 7, 2023 (Source: Glassnode)

These metrics provide a clear illustration of the crypto market’s resilience. The swift recovery from the panic selling triggered by the SEC lawsuits emphasizes the market’s maturing sentiment. It indicates that, while impactful, regulatory developments are becoming less likely to destabilize the crypto market in the long run.

The post Market rebounds after SEC lawsuits spur brief panic appeared first on CryptoSlate.

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