Five Things to Know in Crypto This Week: SEC v Ripple and SEC v Coinbase

Key Insights:

• BTC fell to sub-$41,000 for the first time since the SEC approved the BTC-spot ETFs.
• SEC v Coinbase hearing sheds light on SEC views on cryptos as securities.
• Ripple opposed an SEC motion to compel as the SEC v Ripple case inches towards its conclusion.

Crypto Market Cap Retreats from Highest Level since April 2022

The total crypto market cap was down 0.75% to $1,590 billion from Monday to Saturday. While the loss was relatively modest, the crypto market cap retreated from a January 11 high of $1,808 billion, its highest level since April 2022.

Several factors likely contributed to the pullback. These included,

• Reducing bets on a March Fed interest rate hike.
• Profit-taking after the SEC approval of the first batch of BTC-spot ETFs.
• Shift in sentiment toward the SEC approving crypto-spot ETFs.
• Market sentiment toward the SEC v Coinbase and Ripple cases.

BTC Sees Losses Despite Elevated BTC-Spot ETF Trading Volumes

BTC was down 0.34% to $41,651 Monday to Saturday. Significantly, BTC revisited sub-$41,000 for the first time since the approval of BTC-spot ETFs before steadying. A 3.41% loss on Thursday left BTC in negative territory for the week.

BTC was in negative territory despite improving BTC-spot ETF trading volumes. Bloomberg Intelligence ETF analyst Eric Balchunas shared trading volumes for the first six days of trading, saying,

“The ‘Nine’ saw another jump in volume today, up 12% vs Thur and 53% from Wed, a rare phenomenon. Also, check out $FBTC seeing more trading than $IBIT, those two are in a legit duel to be The One… but all of them posting huge numbers for newbies, competition is making them all hustle twice as hard.”

Profit-taking continued to impact buyer demand for BTC and the broader market. Last week, Bloomberg Intelligence Analyst James Seyffart highlighted possible reasons for the BTC pullback, asking,

“How many people do you think bought BTC or GBTC as a short/medium-term ETF approval play and are getting out?”

Founder and CEO of Vailshire Capital Management, Dr Jeff Ross, had this to say about BTC and BTC-spot ETFs,

“Spot BitcoinETFs have existed for less than two weeks in the US and, already, people in the vast majority of posts, Spaces, and podcasts that I see/hear believe that the only thing that drives the price of spot bitcoin is ETF flows.

HOW COULD THE PRICE OF BITCOIN GO DOWN IF NET FLOWS INTO ETFS IS POSITIVE?????

Make it stop.”

Falling bets on a March Fed rate cut likely contributed to the losses. According to the CME FedWatch Tool, the probability of a March Fed rate cut fell from 76.9% (Jan-12) to 48.1% (Jan-19). The US dollar Index (DXY) ended the week up 0.96% to 102.932.

SEC v Coinbase: The Motion to Dismiss Court Hearing

On Wednesday, January 17, Judge Katherine Failla heard oral arguments on the Coinbase motion to dismiss (MTD). Judge Failla used the first hour of the hearing as a fact-finding mission. The SEC put its cards on the table vis-à-vis cryptos and securities laws.

Responding to questions from Judge Failla, the SEC stated the 13 cryptos cited in the SEC v Coinbase case were securities at the time of issuance. The SEC argued crypto investors buy into the ecosystems behind each token with the expectation of profit.

Significantly, the SEC referred to the Judge Rakoff ruling in the SEC v Terraform Labs case. Judge Rakoff ruled Luna and TerraUSD are securities. Also, the SEC acknowledged it disagreed with the Programmatic Sales of XRP ruling in the ongoing SEC v Ripple case.

Considering the Programmatic Sales ruling, the SEC argued there was no difference between crypto sales to institutional and retail investors. Coinbase shares slid by 7.11% on Thursday as investors reacted to updates from the court hearing. The Thursday sell-off left Coinbase shares down 4.61% in the week ending January 19.

SEC v Ripple Opposes SEC Motion to Compel

On Friday, January 19, Ripple opposed the SEC Motion to Compel in the ongoing SEC v Ripple case. The Ripple filing opposed the motion for two main reasons. Notably,

“The SEC never argued that post-complaint discovery was relevant to remedies but instead took the position that post-complaint conduct was entirely irrelevant to the case. […] The EC should not be permitted to reverse course now.”

Ripple also pointed out the SEC had sufficient time to request documents while fact discovery was open. Fact discovery in the SEC v Ripple case ended on August 31, 2021.

As background, Ripple and the SEC are progressing through remedies-related discovery. The remaining component of the SEC v Ripple case relates to XRP sales to US institutional investors. Judge Torres ruled Ripple breached securities laws when selling XRP to US institutional investors. Judge Torres will deliberate and decide the penalty Ripple must pay for breaking securities laws.

Other News: The ETH-spot ETF Decision

On Thursday, the SEC delayed its decision on the Fidelity ETH-spot ETF application. ETH slid by 2.38% on Thursday, ending the session at $2,467. However, ETH avoided a return to sub-$2,300 despite SEC Chair Gary Gensler previously saying,

“Importantly, today’s Commission action is cabined to ETPs holding one non-security commodity, bitcoin. It should in no way signal the Commission’s willingness to approve listing standards for crypto asset securities.”

Monday to Saturday, ETH was up 0.46% to $2,483. Despite the Gensler warning, investors appear resolute in believing the SEC will eventually approve ETH-spot ETFs.