Bitcoin hits $21,700 low as SEC halts crypto rally

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(Kitco News) – The entire cryptocurrency market entered correction territory on Thursday after a closed-door meeting at the Securities and Exchange Commission (SEC) resulted in the decision that cryptocurrency exchange Kraken violated the law with its on-chain staking service, which the regulator determined to be an offering of unregistered securities.

Applying this decision to all US-based exchanges is likely to result in billions of dollars worth of damages, and is a clear signal that the government is taking a heavy-handed approach to reign in the freewheeling asset class.

Data provided by TradingView shows that the price of Bitcoin (BTC) plunged below support at $22,500 after the SEC announcement, hitting a daily low of $21,700 in the late afternoon and looking set to experience further losses.

BTC/USD 4-hour chart. Source: TradingView

Evidence that BTC was on a lower trajectory before the day’s events was present in Bitcoin futures data early Thursday, which Kitco senior technical analyst Jim Wyckoff said was “slightly weaker and hit a three-week low in early US trading.”

As a result of the ongoing battle to generate additional momentum after Bitcoin’s best January since 2013, “The price trend on the daily bar chart has stalled and the bulls are fading,” Wyckoff warned. “The bulls need to show renewed vigor soon to revive the price rally,” he concluded.

SEC takes momentum from the market

Further insight into the current state of the market was provided by David Lifchitz, Managing Partner and Chief Investment Officer of ExoAlpha, who noted in a conversation with Kitco Crypto that after the rally witnessed in early January, “the move stopped and sat just below the $25 upper resistance 000-ish, waiting for some direction.”

Lifchitz suggested the direction emerged today, “when around 2 p.m. EST, Kraken announced that following its SEC investigation, it has suspended its stake offering and settled with the SEC for $30 million, while Gary Gensler (SEC Chairman) stated that ‘ Staking-as-a service providers must register and provide full, fair and truthful disclosure and investor protection.'”

The immediate question that arose for Lifchitz after this announcement was, “is Coinbase next? And if so, will all staking be banned in the US?”

According to Lifchitz, the consequences of this development on the crypto market “could be massive” due to the large number of protocols that rely on stakes, including Ethereum – which changed its validation mechanism from Proof-of-Work to Proof-of-Stake a few months ago.

“When traders ‘shoot first and ask questions later,’ this explains the sudden selloff of this bubble market looking for a needle,” Lifchitz said. “The first logical stop is at $21k for Bitcoin, but should it break down, it could go back to $17k to restore January’s gains,” he warned.

How the market reacts in the coming days will likely depend on any further actions taken by the SEC and whether the Federal Reserve takes a dovish or hawkish stance going forward, he said.

“If Bitcoin can hold $21,000, we should be fine in the short term, otherwise buckle up!” Lifchitz concluded.

Altcoins are plunging into the red

The rally witnessed across the altcoin market in recent weeks came to a sharp halt in trading on Thursday and reversed course when the SEC crackdown was announced.

Daily performance in the cryptocurrency market. Source: Coin360

While the vast majority of tokens plunged well into negative territory, a few managed to overcome the negativity by posting double-digit gains, including a 24.55% increase for Rocket Pool (RPL), a gain of 19.47 % for ssv.network (SSV), and an increase of 18.23% for Astar (ASTR).

The total cryptocurrency market cap is now $1.03 trillion, and Bitcoin’s dominance rate is 41.3%.