a strong weekend settlement in crypto led by a drop in smaller digital tokens unleashed a new wave of anxiety among investors, after a week in which a US Securities and Exchange Commission crackdown in the sector gained a significant pace.
Altcoins including Cardano's Ada fell as much as 25 percent on Saturday before paring some of the decline, while tokens including Solana's Sol, Polygon's Matic and Avalanche's Avax posted double-digit percentage drops.
Bitcoin, the largest digital assetit was down nearly 3 percent as of 4:15 p.m. Saturday in New York. second ether it previously lost more than 6 percent to hit its lowest level since late March.
The crypto market is known for its big swings on the weekends, when activity is often less and even small transactions can have an impact.
Investors were already on edge this time around after the commission launched lawsuits earlier in the week against market leaders Binance and Coinbase Global, singling out a multitude of altcoins as unregistered securities, including Sol, Matic, and Ada.
"Altcoins have been in the spotlight" since the commission classified some of these tokens as securities in recent lawsuits, said Gordon Grant, co-head of commerce at Genesis.
โComing into this weekend, when we got to the witching hour, these alternate characters were suddenly attacked.โ
Nervousness was compounded by speculation about a rumor that a fund sold all of its holdings of said tokens.
An image circulated on Twitter showing a fake news article covering the sale, though market analysts said there was little reason to believe the rumor was true.
Additional speculation about selling pressure surrounding Robinhood Markets' decision on Friday to remove certain altcoins from its platform also fueled negative sentiment.
Noelle Acheson, former head of market analysis at Genesis Global Trading, said there may be another cause for the price decline, such as a large holder or fund exiting its positions or an attempt to lower prices to cover short positions.
โEarly Saturday morning UTC time is not a good time to go out unless you really want to move the price,โ Ms Acheson wrote in her bulletin on Saturday.
โToday's move is not good news, and not just because of the lower prices. It reminds investors how thin the market is today and how prices can be manipulated.โ
A designation as an unregistered security could make the tokens more difficult to trade if exchanges avoid listing them for fear of upsetting the commission.
Robinhood said on Friday that it will launch Solana's Sol, Cardano's Ada, and Polygon's Matic starting June 27.
โRegardless of whether or not the physical tokens held by Robinhood have moved, the fact that at the end of the month the tokens will be sold if they don't move makes for a very easy trade for people to preposition,โ Spencer Hallarn , a derivatives trader at crypto investment firm GSR, said.
"On top of that, there has been a general withdrawal of liquidity from the market as a number of people have gone down."
The events of the past week featured some momentous days of enforcement actions against the crypto industry in the US.
The commission accused Binance and its founder, Changpeng "CZ" Zhao, of mishandling client funds, misleading investors and regulators, and violating securities rules.
Binance called the commission's action "disappointing" and said it intends to defend its platform "vigorously."
Coinbase has disputed the commission's claim that it is conducting an illegal exchange and said it is prepared to take the fight all the way to the Supreme Court.
BNB, a crypto asset that can be seen as an arbiter of sentiment towards its original creator Binance, declined more than 6 percent on Saturday to hit the lowest level since last July.
While US regulators view Bitcoin as a commodity, commission chairman Gary Gensler has long said that most other tokens are subject to the agency's investor protection laws. and that trading platforms must register with the regulator.
But tagging specific tokens represents a tougher approach, part of a crackdown on digital assets this year following a 2022 rout and a series of blowups, including the crash of the FTX exchange.
โUS regulators have made it clear that they want to control crypto within their borders,โ Michael Safai, co-founder of London-based Dexterity Capital, wrote on Saturday.
"Investors should be wary as more Western players pull out, leaving markets weak and subject to sudden spikes in volatility."
Updated: June 11, 2023, 7:22 am
