The altcoin market is navigating choppy waters, grappling with uncertainty and vulnerability. The litigation launched by U.S. regulators against cryptocurrency exchanges Binance and Coinbase last week has caught a broad swathe of altcoins, or cryptocurrencies excluding Bitcoin and Ether, in its wake, leading to a plummet in their values.
This turbulence is significant. CCData reports that over 50 cryptocurrencies, valued collectively at over $100 billion and constituting roughly 10% of the entire market, are now identified as securities by the SEC watchdog. High-profile coins like Solana, Polygon, and Cardano have suffered steep declines, dropping between 23% and 32%.
Senior Analyst at K33 Research, Vetle Lunde, suggests, "Security classifications would impact all U.S. crypto exchanges, causing a mandatory shutdown of multiple altcoin pairs." While it remains uncertain whether U.S. courts will uphold the SEC's classification, repercussions are already materializing. Robinhood Markets has announced plans to delist Solana, Cardano, and Polygon from its platform, a move that may prompt other exchanges to do the same.
According to Bitwise Asset Management Analyst Ryan Rasmussen, this shift would heighten operational costs for individual tokens and their listing on crypto exchanges. "Securities can only be traded by brokers, and only on regulated exchanges... This would certainly present a challenge for exchanges to implement."
Market players forecast this SEC reclassification to dampen investment enthusiasm for blockchain networks underpinning tokens like Solana and Cardano, known for their role in developing decentralized finance and other applications. Lucas Kiely, Chief Investment Officer of digital investment platform Yield App, warns this could "fundamentally hinder their ability to attract funding from the U.S," potentially affecting the recruitment of developers and users.
Both the Cardano Foundation and Solana Foundation have publicly contested the SEC's classification of their tokens as securities under U.S. law, expressing eagerness to collaborate with regulators to attain further clarity. Polygon Labs has refrained from commenting.
Cryptocurrency heavyweights, Bitcoin and Ether, however, remain untouched by the SEC's lawsuit, as do stablecoins such as Tether and USC Coin. Nevertheless, with Bitcoin and Ether down by approximately 4.5% and 8% since the SEC's initial lawsuit, investors' apprehension surrounding crypto is palpable.
In times of uncertainty, many investors seek refuge in Bitcoin, perceived as a relative sanctuary within the volatile crypto landscape. Data tracker CoinMarketCap.com records Bitcoin's share of the cryptocurrency market growing from 45% to 47.6% post-lawsuits.
Despite the current turbulence, some market observers remain optimistic, suggesting that falling prices could entice value-seeking investors towards beleaguered altcoins. Recent CoinShares data reveals modest but positive net inflows into investment products tracking altcoins this year, unlike Bitcoin and Ether.
CoinShares analyst James Butterfield noted, "Altcoins...represent assets in the early development stages compared to Bitcoin. Investors are willing to remain patient, maintaining their investment in the hope of eventual success."
