It’s been quite a week in the sector that never sleeps. Cryptocurrencies plummeted last Wednesday, recovered and then fell again heading into the weekend, as China and US regulatory issues weighed on the sector.
By the end of Tuesday, many digital currencies had regained some of the losses, but were still trading well below their levels prior to the sharp decline.
In what became a largely negative week for crypto news, a surge in trading as many investors apparently looked to buy into the dip caused a plethora of problems for crypto exchanges. Meanwhile, in the US, Senate Banking Committee chair Sherrod Brown has questioned recent national trust charters given to some crypto firms by the Office of the Comptroller of the Currency (OCC), an independent regulatory bureau within the US Treasury department.
Looking at the wider crypto theme on our ETF screener, Blockchain has gained 0.93% over the last week, slightly lagging the S&P 500 index, which is currently up 1.10% (as of 25 May’s US market close).
Meme coins follow wider cryptos crash
Ethereum’s [ETH] freefall last week exceeded bitcoin’s [BTC] 30% midweek decline, as the second-largest cryptocurrency by market capitalisation plunged 43.20% inside 24 hours last Wednesday, falling from a day high of $3,437.94 to a low of $1,952.46, based on Yahoo Finance data. It marked the biggest crypto sell-off since “Black Thursday” in March 2020, according to Coindesk. ETH partially recovered, dropped back again and then started the week on the front foot, gaining 32.83% to $2,447,71 inside 24 hours by Monday evening (BST). By early Tuesday evening (BST), ethereum had moved slightly higher still, to $2,568.01, according to data from Coindesk.
Popular meme crypto, Dogecoin [DOGE], followed the broader market sell-off, sliding by as much as 54.19% on Wednesday last week (from an opening price of $0.476 to a low of $0.218). Dogecoin went on to recover to $0.333 – an overall decline of 30.04%, according to Yahoo Finance. DOGE has been volatile in the days since, but sat at $0.339 by early Tuesday evening (BST), according to Coindesk.
“Without significant mainstream adoption [and] recognition … alts are, and have always been, more speculative in nature than bitcoin … this means they rise faster during bull runs and drop sharper during declines” - Hunain Naseer
Senior editor at OKEx Insights, Hunain Naseer, explained why meme and smaller alt coins generally tend to follow the broader sell-off. "Without significant mainstream adoption [and] recognition … alts are, and have always been, more speculative in nature than bitcoin … this means they rise faster during bull runs and drop sharper during declines."
The total crypto market capitalisation dropped 22% in 24 hours last week, to $1.565trn, according to TradingView. "The catalyst is a market that had been deeply at risk for a pullback following a parabolic run up and a market that is feeling a little more pressure from global macro forces," said Joel Kruger, currency strategist at LMAX Digital, as reported by Coindesk.
Exchanges struggle to cope with high crypto volumes
Last week’s extreme crypto volatility led to widespread technical issues for major blockchain exchanges across the board, as the likes of Coinbase [COIN], Gemini [GMNI], Binance and Kraken all struggled to cope with heightened levels of activity.
A Kraken note explained: "From where we stand, it appears that many investors are now taking advantage of this morning's disruption to buy the dip, leading to a significant surge in web traffic and trading activity across the industry," reported CoinDesk.
“From where we stand, it appears that many investors are now taking advantage of this morning's disruption to buy the dip, leading to a significant surge in web traffic and trading activity across the industry” - statement from Kraken
Coinbase said problems across its website, mobile and APIs were leading to "intermittent downtime”. Kraken admitted to "connectivity issues" on web and mobile, and a problem with its instant buy feature, while Gemini said its users may experience "degraded performance."
The world’s largest exchange by volume, Binance, said withdrawals were "temporarily disabled due to network congestion." Crypto holding company Voyager Digital [VYGR] cited "widespread exchange outages and exchange connectivity issues across the market" as reasons for its app going down.
US Senate chair questions crypto firms' charters
Sherrod Brown, Ohio senator and Senate Banking Committee chair, has raised concerns over the granting of national trust charters by the Office of the Comptroller of the Currency (OCC), reports Coindesk. Brown believes that some companies seeking charters from the US regulatory agency do not meet the OCC’s requirements. In an open letter, Brown named three crypto firms – Paxos, Protego and Anchorage – that have secured conditional OCC trust charters in recent months.
“The fact is, given the many uncertainties present in the digital asset landscape ... the volatility of digital asset valuations and the disproportionate influence individuals can have on entire cryptocurrency markets, the OCC is not in a position to regulate these entities comparably to traditional banks” - Michael Hsu
Brown has asked acting comptroller, Michael Hsu, to reassess these decisions, saying: “these companies suggest that the OCC’s approval of their charters guarantees their business model is as safe, stable and dependable for customers as a local community bank. The fact is, given the many uncertainties present in the digital asset landscape ... the volatility of digital asset valuations and the disproportionate influence individuals can have on entire cryptocurrency markets, the OCC is not in a position to regulate these entities comparably to traditional banks."
The senator questioned whether the OCC had conducted “appropriate due diligence” before granting the three conditional charters. Hsu, who only just stepped into the role, has indicated that the OCC is reviewing how it approaches cryptos