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Why Coinbase and Crypto are Down Today

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What happened

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

Bitcoin (BTC -1.54%) was a big move, dropping 5% at 2:30 p.m. ET and Solana (FLOOR -2.17%) fell 5.5% during this period. The decline in crypto has led to Coinbase Global (PIECE OF MONEY 2.60%) dropping up to 5.6% and Silvergate Capital (IF 0.51%) down 6%.

So what

Today’s headlines focused on the downsides of crypto, with an alleged Ponzi scheme attracting 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 a security in the Coinbase employee insider trading case. Put it together and it looks like the SEC is stepping up crypto enforcement.

Crypto exchange CoinFlex also announced that it is letting “significant numbers” of people pass through the business. The objective is to reduce costs by 50 to 60% in order to try to remain solvent. CoinFlex froze withdrawals when it accused Roger Ver of default on $47 million loan and the company struggles to survive.

It didn’t help that US stock markets were trading lower on Monday. The move isn’t abrupt, but it’s another week of big profits and investors fear the news isn’t bullish enough to keep funds flowing into the crypto.

Now what

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

The first is that the SEC takes enforcement seriously. It can take years to litigate cases, but with the SEC swirling around, it’s easy to see how worried crypto investors can be about the future.

A second takeaway is a rapid turnaround in investor sentiment during the crypto winter. Many investors probably thought the crypto was on the verge of a multi-year downtrend, but that quickly reversed despite a negative gross domestic product figure and rising interest rates last week.

Finally, earnings season is in full swing and this is going to lead to trading volatility. Silvergate reported July 19 and said net income rose to $38.6 million from $20.9 million a year ago, despite market weakness. Coinbase will report on August 9 and the results may not be great, but investors will be looking for momentum in the services sector and cost reductions to start to take effect.

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

Travis Hoium has positions in Coinbase Global, Inc. and Solana. The Motley Fool holds positions and recommends Bitcoin, Coinbase Global, Inc., and Solana. The Motley Fool recommends Silvergate Capital Corporation. The Motley Fool has a disclosure policy.

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