The cryptocurrency market is back in the green after going red on Monday and Tuesday, and the total market cap rose 2.9% to $1.168 trillion.
The leading cryptocurrency Bitcoin gained 4.3% to now trade at $26,802 while facing significant resistance near the $27,400 level and having support at $26,400. Ether meanwhile jumped 3.2% to now trade at $1,873.
The recent slump in crypto prices and the shares of crypto and blockchain companies came after the US Securities and Exchange Commission (SEC) sued the largest cryptocurrency exchange Binance and its founder and CEO, Changepeng Zhao, aka “CZ.” The regulator alleged that Binance and CZ weaved an “extensive web of deception” and mishandled investors' assets.
Interestingly, the crypto market recovered late on Tuesday despite the SEC bringing a lawsuit against Binance and Coinbase.
Shares of Coinbase (COIN) dropped more than 10% under $60 on Monday, and the next day, the news of the lawsuit saw the prices falling even further to below $46.50. However, since then, much like how the crypto market has recovered, COIN shares, too, went up to now trade at $51.61. COIN is also still up over 50% year-to-date (YTD).
In the lawsuit against Coinbase, the SEC detailed “a non-exhaustive list” of 13 cryptocurrencies, including Solana (SOL), Cardano (ADA), Polygon (MATIC), Sandbox (SAND), Filecoin (FIL), Axie Infinity (AXS), Flow (FLOW), Nexo (NEXO), Chiliz (CHZ), Near (NEAR), Dash (DASH), Voyager (VGX), and Internet Computer (ICP) as securities.
“From the time of their first offer or sale, each of these Crypto Asset Securities was offered and sold, and continues to be offered and sold today, as an investment contract and thus a security,” the regulator wrote.
The SEC accused Coinbase of operating as an unregistered broker, exchange, and clearing agency simultaneously, arguing that it solicited customers, handled orders, allowed for bids, and acted as an intermediary all at once, which deprived investors of critical protections. The SEC also pointed to Coinbase's Prime, Wallet, staking products, and token listing as areas where it violated federal securities laws. However, the SEC did not accuse Coinbase of commingling customer funds as it did Binance.
“The SEC's reliance on an enforcement-only approach in the absence of clear rules for the digital asset industry is hurting America's economic competitiveness and companies like Coinbase that have a demonstrated commitment to compliance,” said Coinbase's chief legal officer Paul Grewal, in a statement.
Senator Bill Hagerty (R-TN), a member of the Senate Banking and Foreign Relations Committees, meanwhile came in support of crypto, tweeting that the SEC is “weaponizing their role to kill an industry” by “allowing a company to list publicly and then stonewalling their attempts to register is indefensible.”
Despite the enforcement action against Coinbase, Ark Investment Management doubled down on its investment in the crypto exchange and acquired more shares. Cathie Wood's Ark is actually the second-largest holder of COIN stock.
ARK bought 419,324 shares of Coinbase, worth around $21.6 million, which were split across ARK's Innovation ETF (NYSE:ARKK), the Next Generation Internet ETF (NYSE:ARKW), and the Fintech Innovation ETF (NYSE:ARKF). With this latest purchase, the total COIN holdings of Ark have now jumped to 11.44 million shares, worth about $590 million.
CEXs Get Sued, DeFi Gains Traction
SEC suing two prominent centralized cryptocurrency exchanges (CEXs) resulted in wiping over $50 billion from the crypto market in a matter of hours. This included decentralized finance (DeFi), an umbrella term for peer-to-peer financial services on public blockchains.
The combined market cap of the DeFi sector is $47.42 billion, down from $169.5 billion in Nov. 2021 peak, according to CoinGecko. Meanwhile, the sector is recording $34.68 billion in 24-hour trading volume.
From Lido, Uniswap, Chainlink, and The Graph to Aave, Synthetix, and Rocket Pool, DeFi tokens took a hit as well. Though much like a broad asset class, tokens bounced off rather quickly.
This occurred after SEC Chair Gary Gensler said in an interview with CNBC on June 6 that America doesn't need crypto because “we already have a digital currency, it's called the US dollar.” He then went on to add, “We have not seen, over the centuries, that economies and the public need more than one way to move value.”
However, one good thing for DeFi has been CEXs experiencing a rush of withdrawals following the lawsuit. According to Glassnode, withdrawals on Binance sped up but were limited to around 10,000 BTC, representing 1.5% of its total reserves.
Data provider Nansen noted that “while the sum of the negative netflow is high, Binance still holds over $54B across their known wallets.”
But Binance is not the only one getting the brunt of the lawsuit, Coinbase users have also pulled out over $57.7M across multiple chains from the exchange, excluding BTC. $43.1M of this figure has been from Coinbase Custody, with Cumberland and Brevan Howard Digital being the two leading institutional investors withdrawing funds.
DeFi is now gaining traction in the aftermath, with the median trading volume across the top three decentralized exchanges (DEX) jumping more than 440% in the past 48 hours.
BSC PancakeSwap v3 and Uniswap v3 on Ethereum and Arbitrum are currently the most prominent DEXs, accounting for more than 50 percent (53%) of the total DEX trading volume in the last 24 hours. Total daily trading volumes on these DEXs soared by over $792 million this week, according to aggregated data from CoinGecko.
Meanwhile, the trading volume surged by 328% on Curve, a DEX that allows stablecoin trading. The majority of the trading activity on Curve is currently focused on USD-pegged stablecoins USDC and USDT.
Trading volumes on DEXs have actually been on the rise for some time amidst the ongoing regulatory crackdown in the US. In May, it even briefly surpassed those of Coinbase as traders rushed to trade meme coins like PEPE through Uniswap and others as the meme coins were not listed on major CEXs. As volume on DEXs surged, net outflows on Binance climbed past $775 million at the time.
The decentralized application (dApp) industry, overall, grew by nearly 10% in May, according to DappRadar's monthly industry report. It recorded an average of 1,967,051 daily unique active wallets (dUAW) due to the growth of the gaming sector and DeFi, which continue to “exhibit promising signs of growth and stability, further asserting the importance of this thriving industry.”
Unique active DeFi wallets also recorded an increase of 18% last month to 607,945. With this, DeFi now accounts for 31% of dApp market share. However, there has been a decline of 4.3% in DeFi's total value locked for the month to $79.16 billion.
When it comes to the blockchain, BNB Chain was the market leader for dApp activity, with an 8.68% increase to reach 532,056 dUAW. As per the report, The increase in dUAW occurred in blockchains offering DeFi products.
DeFi Gets Hammered, Kava Emerges as Outlier
Amidst all this chaos, DeFi coin KAVA moved in the opposite direction and pumped hard. As of writing, the $656.36 million market cap KAVA token spiked over 7% in the past 24 hours to trade at $1.17 while managing $59.2 million in 24-hour trading volume.
Technically, upward movement in KAVA's price faces resistance at $1.50, while on the downside, support from buyers is available at $0.96 and $0.80.
KAVA price is up 13% in the past week in contrast to the likes of UNI, LINK ICP, GRT, AAVE, FTM, XTZ, CFX, CRV, MKR, SNX, FXX, LRC, CAKE, CVX, BAT, BAL, COMP, 1INCH, SUSHi, UMA, and others which are down between 5% to 15%.
While down 54.3% in the past year, KAVA is still up 117.2% in 2023 so far. But the token has lost 87.2% of its value since hitting an all-time high at $9.12 in Aug. 2021.
Much like the price, Total Value Locked (TVL) across KAVA protocols also jumped to almost $222 million from $169 million at the beginning of the year, according to data from DeFi Llama.
Even in May, which proved to be a dull month for the broad crypto market, KAVA recorded 33% gains. The average loss across the market, meanwhile, was at 5.62%. KAVA emerged as the outlier, much like how it is outperforming the DeFi market today.
At the time, a mid-May mainnet upgrade, which enhanced the blockchain's throughput and security, acted as a catalyst for the price surge. Another reason behind KAVA's rally has been token holders' suggestion to terminate its grants and rewards programs by the end of this year.
KAVA is the native asset of layer-1 blockchain Kava. Founded in 2017 by Brian Henning Kerr and Scott Stuart, the non-profit behind the project, Kava Labs raised $1.2 million in seed funding in Feb. 2019, which was followed by another venture round in July of the same year.
The blockchain combines the flexibility and speed of Ethereum with the interoperability of the Cosmos SDK. Cosmos SDK is a highly-scalable and secure blockchain that allows Kava to connect with 30 chains and billions of dollars in the Cosmos ecosystem via the IBC protocol. Meanwhile, being EVM compatible means all the dApps on the Ethereum network benefit from the scalability and security of the Kava Network.
For consensus, Kava uses Tendermint, which comes with single block finality, enabling the project to support protocols that need to process a high number of thousands and cater to millions of users.
This DeFi protocol allows users to lend and borrow assets using multiple crypto assets as collateral. For this, it uses a cross-chain lending platform where users can borrow the USDX stablecoin against non-DeFi assets like BTC. Users can also deposit supported cryptos and earn interest on this platform.
Overall, Kava's resilience amidst the ongoing market volatility can be attributed to its solid fundamentals and growing adoption.