CRYPTO AT WAR: SHOULD WE BE WORRIED BY THE SEC?

Hello, fellow warriors of crypto!

Are you ready to enter the battlefield that has become blockchain? I'm sure you're aware that the SEC dropped a couple of bombs this week. Fortunately for us, crypto is extremely battle-hardened.

So, let's tighten the armour, sharpen the digital swords, and march through the trenches of crypto warfare together.

Recognise - SEC Battles the Crypto Industry: Should We be Worried?
Respond - How to Track Major Exchange Outflows
Research - Those That Simplify Crypto Will Win 👉 + New Crypto to Watch

RECOGNISE - GENSLER & SEC THROW BOMBS AT THE CRYPTO INDUSTRY: SHOULD WE BE WORRIED?

All-out war has been brought to crypto's doorstep. And I'll be frank - the crypto market has taken it on the chin pretty well (I know I'm biased - but still).

For those that may not be aware, on Monday, the SEC sued Binance and its CEO Changpeng Zhao, more affectionately known as CZ, for operating an unlicensed securities exchange in the US.

Less than 24 hours later, the SEC also filed charges against Coinbase, with the regulator saying Coinbase operated illegally without registering as an exchange and offering unregistered securities.

I don't think the Coinbase charges are as important as the Binance ones so I'm going to focus on those.

Now, to give a little background, to become compliant in the US, Binance - the world's largest crypto exchange - established BinanceUS: a platform dedicated to US investors.

So, last week, the SEC filed charges claiming that instead of BinanceUS being a completely independent platform, Binance Global and CZ were actually still in charge and had created what they called "an extensive web of deception."

They claim Binance and CZ allowed the manipulation of markets, corrupted trading volumes, and did not properly restrict US customers from accessing the regular Binance crypto exchange.

In addition to that, BinanceUS also allowed investors to buy and sell cryptos that the SEC deems are securities (yeah...right). In this list were SOL, ADA, MATIC, FIL, SAND, MANA, AXS, FLOW, CHZ, VGX, ICP, NEAR, and COTI.

MY TAKE:

Now, there is a lot to unpack. But, after following the story for the entire week I want to distill my thoughts (I'll try and do this as concisely as possible).

Cryptos as securities. The issue regarding cryptos being securities is a moot point. Based on everything I have read from trusted sources, these cryptos cannot be considered securities as they do not involve any form of investor contract.
Remaining charges. The claims regarding Binance and CZ commingling user funds, manipulating markets, and actually being in charge of BinanceUS are a little easier to believe. The saying goes "there's no smoke without fire" - unfortunately, this is something we have witnessed in the past inside crypto. We can't know for sure what's gone on in the background but it's always best to assume the worst.
But, will it impact Binance? No, I don't think it will. I could see a scenario where BinanceUS may have to shut down operations - not great for US residents - but the standard Binance crypto exchange will continue to function as normal.
The SEC's influence is diminishing. While the fallout from the SEC is not great for the crypto market, their influence is slowly disappearing. The US market now only accounts for 16% of all spot crypto volume. The largest majority actually comes from Asia. So while actions against crypto from the US are not great, it's important to remember that only the US is affected. The SEC has no jurisdiction anywhere else.
Crypto recovered. In the subsequent 24 hours after the charges were filed, BTC erased the majority of the losses it sustained. It has dropped lower once again throughout the week but continues to keep its head above the 200-week moving average. What can we infer from this? Well, the majority of investors are no longer easily swayed by the SEC's actions.

Now, those are just some of my initial thoughts and insights that have been rolling around my head all week and I hope you find them useful in terms of wrapping your head around what happened and preparing for what might come next.

BTC TECHNICAL ANALYSIS:

As I'm writing this right now, the Bitcoin chart is at an extremely pivotal moment.

In last week's newsletter, I mentioned that for Bitcoin price to move higher, we would need the 200-week moving average to act as support - and that's exactly what happened during the week.

However, as I write, Bitcoin is falling below the 200-week moving average once again - many altcoins are crashing heavily alongside.

If BTC closes below the 200-week MA on the weekly timeframe a retest of $24,000 is extremely likely. Fortunately, there are a lot of confluences at this level that may slow the price down but $24,000 should be expected.

On the other hand, to remove the threat of further downside, Bitcoin would need to close above $27,500 on a daily timeframe. It seems like a tall ask with the way the market is at the moment...but stranger things have happened.

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RESPOND - TRACKING MARKET SENTIMENT WITH ON-CHAIN DATA

The exchange-impacting news from last week is a great reminder of the power of on-chain data and what it can tell us.

"On-chain what now?"

On-chain data is the study of transactions that have been verified and recorded on a blockchain - and I think it's fascinating. What can I say, I'm a true crypto nerd 🤓!

But, what's important is that on-chain data can tell us what crypto assets are being moved, how much is being moved, and potentially where they are moving from and too.

This can be crucial for two reasons 1) it can keep us up to date on the health of a crypto exchange and 2) it can give us an insight into market sentiment - are bulls or bears in control?

In the 24 hours after the SEC filed its charges, on-chain data showed us that 29,500 BTC and 108,000 ETH had been withdrawn from Binance.

Why is this important?

Well, the 29,500 BTC and 108,000 ETH that were removed from Binance only accounted for 2.0% and 2.5% of the exchange's respective overall balances.

A similar insignificant amount was removed from Coinbase (<1% for BTC, and 4.8% for ETH).

So, we can take 2 things away from this on-chain data: 1) it shows that investors did not seem to panic after the SEC filed its charges and 2) it explains why BTC and ETH recovered so well after the event.

Yes, some were removing assets from centralised exchanges (that's a good move anyway), but they weren't selling.

So a lot can be drawn from on-chain data:

It can reveal market sentiment, helping you make smarter moves.
It can track inflows and outflows which allows us to prepare for periods of volatility.
And, finally, it opens up transparency.

So, if this on-chain data is so important, where can you go to view it?

Well, there are a few sources that you can call upon.

The first is a website called DeFiLlama - it aggregates data from a variety of different blockchains and specific applications within each blockchain ecosystem. But, it also has a tab called 'CEX Transparency', which for a free tool is extremely useful.
The second is a website called DuneAnalytics - this is a customisable dashboard that allows anyone to play around with on-chain data. While you can create your own dashboard, many of the dashboards that have already been created are golden!
The third is Glassnode - although predominantly a paid platform that targets the business use of on-chain data, the wealth of insights they release on a weekly basis is amazing. In particular, I would recommend reading the Week-on-Chain as frequently as possible.

An alternative option to the above would be to follow those on Twitter that are experts in the field.

Some good examples that I use include @_Checkmatey_, @OnChainCollege, and @OnChainWizard.

So, don't fall asleep on on-chain data. It can tell you more than many give it credit for.

RESEARCH - THOSE THAT SIMPLIFY CRYPTO WILL WIN 👉 + NEW CRYPTO TO WATCH

I won't lie to you, I thought the world would be a lot further along with regard to crypto adoption by now.

However, I can understand why. It's not the easiest of ecosystems to navigate.

Unless you're interested in profiting from the industry, the majority don't want to have to learn about crypto wallets, private keys, and smart contracts. And I can't blame them.

If you don't stand to earn returns from it - why would you?

That's why I believe that those blockchain projects that help to simplify crypto to the point where people don't even realise they're leveraging blockchain technology will come out on top.

One of the projects making waves when it comes to simplifying crypto adoption is the Ethereum Name Service (ENS).

The Ethereum Name Service is a protocol built on top of the Ethereum blockchain that allows people to register unique domain names that can be used instead of wallet addresses.

Right - so what does that actually mean?

So, instead of sharing long, complex wallet addresses, by creating a unique domain name - such as AccessAllCrypto.eth - the domain name can be used instead.

It's the same principle that websites use - instead of IP numbers, we all see www.google.com.

And it's not just limited to Ethereum. The same domain name can be used across multiple different blockchains including Bitcoin.

So, the protocol completely removes the need of copying and pasting those never-ending strings of characters. Just type in your domain name, and you're good to go.

And the best part? There is an associated cryptocurrency - called ENS - so there is an opportunity to tap into this sector from an investment perspective.

The ENS token is required when registering a domain name and acts as the governance token of the platform so is directly tied to the demand for the service.

Is it a strong opportunity? Time will tell. But, it is one that I have on my watchlist because it is one of the best infrastructure plays that is trying to bring crypto to the masses.

And with the hopes of simplifying crypto that brings us to the end of this week's newsletter!

If you take nothing else away from Issue 11, remember this - the SEC does not hold as much sway in the crypto as many give it credit for. Have a dig around some on-chain data - you might be surprised by what you might find! And stay on the lookout for projects that are simplifying crypto adoption - it is another important narrative to follow.

As always, thank you so much for subscribing, and if you ever have any thoughts, or suggestions or would like a particular topic covered, ping me an email or a message on socials any time 🙌.

Have a great weekend and I'll see you for the next one.