Why Coinbase and Crypto are down today

What happened

The crypto market fell on Monday after a strong month for the industry. Coinshares reported that there were $474 million in inflows into the crypto market in July, reversing $481 million in outflows in June.

Bitcoin (BTC -3.60%) was a big mover, falling 5% as of 2:30 PM ET and Solana (SUN -5.81%) fell 5.5% over that time. The decline in crypto led to Coinbase Global (COIN -0.41%) falling as much as 5.6% and Silvergate capital (SAY -1.66%) falling 6%.

So what

Headlines today were focused on the flip side of crypto, with an alleged Ponzi scheme gaining attention. The Securities and Exchange Commission (SEC) charged 11 people with fraud on Monday, and Binance.US pulled the AMP token after the token was deemed collateral in the Coinbase employee insider trading case. Put it all together and it appears that the SEC is increasing enforcement in crypto.

Crypto exchange CoinFlex also announced it was letting “a significant number” of people move across the company. The goal is to reduce costs by 50% to 60% to try to remain solvent. CoinFlex froze withdrawals when it accused Roger Ver of defaulting on a $47 million loan, and the company is struggling to survive.

It has not helped that US stock markets are trading lower on Monday. The move isn’t sharp, but this is another big earnings week and investors are concerned that the news may not be bullish enough to keep funds flowing into crypto.

What now

Today’s move is little more than normal volatility in the crypto market. But investors can take a few things away from the past few weeks.

One is that the SEC takes enforcement seriously. Cases can take years to actually litigate, but with the SEC around, it’s easy to see how crypto investors could be nervous about the future.

Another takeaway is a quick turnaround in investor sentiment during the crypto winter. Many investors thought crypto was probably in for a multi-year downtrend, but that quickly reversed despite a negative gross domestic product and rising interest rates last week.

Finally, earnings season is in full swing, and that’s going to drive volatility in the trade. Silvergate reported on July 19 that net income had jumped from $20.9 million a year ago to $38.6 million, despite the weak market. Coinbase will report on August 9 and the results may not be great, but investors will be looking for momentum in the services business and cost cuts to start taking effect.

The future is still bright for crypto, but it continues to be a bumpy ride. Today was simply a decline for valuations, but tomorrow the trend could reverse.