Robinhood Struggles Amid SEC’s Intensifying Crackdown

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By A D

Robinhood recently delisted Solana (SOL), Cardano (ADA), and Polygon (MATIC) from its trading platform as the U.S. SEC classified these tokens as unregistered securities.

Robinhood reported a significant decline in cryptocurrency trading volume during May. Trading volume for cryptocurrencies on the platform plummeted to $2.1 billion, marking a 43% decrease compared to the previous month. Year-on-year, the decline was even more substantial, with crypto trading volume experiencing a staggering 68% slowdown.

This decrease in trading volume directly impacted Robinhood’s daily average trading revenue (DART) for crypto trading. In May, DART witnessed a 22% decline compared to the prior month, while the year-on-year decline stood at a substantial 53%.

Recently, Robinhood made the decision to delist Solana (SOL), Cardano (ADA), and Polygon (MATIC) from its trading platform. The decision comes as a response to the U.S. Securities and Exchange Commission (SEC) classifying these tokens as unregistered securities. After June 27, Robinhood will no longer support Cardano (ADA), Polygon (MATIC), and Solana (SOL), resulting in automatic selling of these tokens for users and crediting the funds to their accounts.

Until the delisting date, users can continue buying, selling, and transferring these tokens within Robinhood. However, to comply with regulatory requirements, Robinhood is taking this step to ensure adherence to the SEC’s classification of these assets.

Investor Outflows from Crypto Funds

Restrained enthusiasm persists among institutional investors as they continue to withdraw significant amounts from digital asset funds for the eighth consecutive week. Last week alone, a substantial $88 million was pulled out, bringing the total outflows to an astonishing $417 million over a two-month period.

The primary source of selling pressure this week emerged from North America, which accounted for an overwhelming 87% of the total outflows. Canadian-based fund 3iQ spearheaded the selling spree with a notable $76.9 million worth of divestment, pushing their year-to-date outflows to an impressive $286 million. In Europe, Swiss funds witnessed modest inflows of $9.2 million, while Germany experienced outflows of $9.4 million.

Bitcoin, the flagship cryptocurrency, took the lead in outflows for the week, with a substantial $52 million withdrawn over the past seven days. Institutional investors have exhibited a strong disposition to sell Bitcoin throughout the year, resulting in a noteworthy cumulative outflow of $172 million. However, short interest in Bitcoin declined, with outflows amounting to a meager $1.1 million for the week.

Ethereum, the second-largest cryptocurrency, secured the runner-up position in terms of weekly outflows, totaling $36 million. Notably, this figure represents the highest weekly selling since The Merge, an important event that took place in September of the previous year. Consequently, the cumulative withdrawals from Ethereum-based funds in 2023 have now reached $72 million.

Altcoin-based funds have experienced a mixed response from institutional investors. While Litecoin (LTC), Solana (SOL), and Ripple (XRP) saw modest inflows, each remaining below $1 million, funds based on Polygon (MATIC) faced the highest sell-off during the week, amounting to $400,000.

U.S. crypto exchanges have witnessed a decline in activity and liquidity as a direct result of the SEC’s lawsuits. The SEC’s lawsuits have targeted crypto exchanges, alleging that they facilitated unregistered securities offerings. This regulatory scrutiny has led to a decrease in trading activity as exchanges work to comply with legal requirements and assess the potential impact of the lawsuits.

The lawsuits and resulting uncertainties have prompted a reduction in liquidity and trading volume on U.S. crypto exchanges. Reduced liquidity can amplify price fluctuations and hinder the overall efficiency of the market. Over the span of eight weeks, the market capitalisation has reached its lowest point in more than two months, declining by 2.4% between June 4 and June 11.

bitcoin price chart
At the time of writing, Bitcoin price is $26,099.61. Image Source

Amidst this sell-off, Bitcoin and select altcoins have displayed remarkable resilience. Bitcoin experienced a marginal 0.8% gain over the seven-day timeframe. Instead, the negative momentum stemmed from a selection of altcoins, including BNB, Cardano, Solana, Polygon, and Polkadot, which faced substantial plunges of over 15%.

The performance of altcoins played a pivotal role in shaping the market sentiment during this period. The significant price declines observed in these altcoins contributed to the prevailing bearish trend and had a direct influence on the overall market capitalisation.

Binance US Suspends USD Support

Binance, one of the largest cryptocurrency exchanges globally, and its CEO, Changpeng Zhao (CZ), have found themselves entangled in a legal battle with the U.S. Securities and Exchange Commission (SEC). The SEC has filed a lawsuit consisting of 13 charges, accusing Binance of running an unlawful securities trading platform within the United States and misappropriating customer funds.

Read: Binance vs. SEC: The Lawsuit and its Ripple Effects on the Crypto Industry

Following the SEC’s legal action, a court in the District of Columbia swiftly responded by granting an emergency restraining order, effectively freezing the assets of Binance’s U.S.-based subsidiary, Binance.US. Consequently, Binance.US has been compelled to halt its U.S. dollar deposit and withdrawal services.

In response to the court order, Binance.US has promptly advised its customers to initiate withdrawals of their U.S. dollar holdings via bank transfers before the specified deadline of June 13th, 2023. Additionally, the exchange has commenced the process of delisting trading pairs denominated in U.S. dollars, such as BTC-USD. However, trading activities involving stablecoin pairs, such as BTC-USDT, will remain supported. The exchange’s other cryptocurrency services, including trading, staking, and deposits/withdrawals, will continue without interruption.

The court’s filing reinforces the SEC’s argument, affirming the urgent need to freeze all funds associated with Binance.US. This order restricts Binance.US and its affiliated entities from transferring assets, except to recognised third-party custodians. Furthermore, it mandates Binance to repatriate any assets held on behalf of Binance.US customers that are situated outside of the United States.

With the suspension of USD services, users will have to adapt to new deposit and withdrawal processes. Instead of directly handling USD transactions, they will need to convert their funds to cryptocurrencies and use the available crypto deposit and withdrawal options on the platform.

The evolving regulatory landscape has prompted Binance to reassess its operations and make strategic decisions to address regulatory requirements. These efforts include implementing Know Your Customer (KYC) procedures, strengthening Anti-Money Laundering (AML) protocols, and seeking licenses in specific jurisdictions. The suspension of USD services on Binance US may be part of Binance’s broader compliance strategy to mitigate regulatory risks.

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