The crypto market has seen a surge in the dominance of bitcoin (BTC), ether (ETH), and stablecoins, reaching their highest level since February 2021. This increase in market share is largely attributable to investors fleeing smaller tokens following the recent U.S. regulatory clampdown. As it stands, these assets account for a significant 80.5% of the cryptocurrency market’s total valuation, amounting to roughly $1 trillion, according to digital asset research firm K33 Research.
Last week, the crypto community witnessed a dramatic sell-off of altcoins—one that can be primarily linked to the U.S. Securities and Exchange Commission’s (SEC) legal actions against crypto exchanges Binance, Binance.US, and Coinbase. In these lawsuits, several top 10 crypto assets like Binance’s BNB, Cardano’s ADA, and Solana’s SOL were tagged as securities, causing them to lose as much as 30% of their value in just one week.
If the SEC’s allegations prove to be true and many tokens are indeed securities, token issuers and exchanges could face mounting pressure to register with the SEC. This potential outcome has prompted popular retail trading platforms like Robinhood and eToro to cease U.S. trading for certain tokens flagged by the SEC. Market makers have also likely sold tokens, anticipating lower trading demand.
While the legal battle could very well continue for years to come, K33 Research suggests that the prolonged struggle may dampen capital inflows to assets under SEC scrutiny. Consequently, this could enhance the investment appeal of BTC and ETH as they may pose fewer regulatory risks.
Unfortunately, the heightened regulatory scrutiny could lead to a hands-off approach by funds, further driving down liquidity as a result of increased compliance work and overall low trading volumes. K33 Research speculates that over the next year, BTC and ETH dominance could grow stronger due to the costs and risks associated with allocating capital to altcoins dating back to 2017.
Although smaller tokens have experienced considerable declines, with BNB and MATIC seeing losses of 2.7% and 15%, respectively, since the beginning of the year, BTC and ETH have managed to hold on to most of their gains made during this year’s crypto market recovery. Year-to-date, both leading cryptos have shown growth, with BTC and ETH up 57.3% and 45.4%, respectively.
However, the ongoing tug-of-war between regulatory authorities and the cryptocurrency market raises questions about the future of smaller tokens, as well as the industry as a whole. With the increasing dominance of BTC and ETH as safer investment options, the resulting impact on investment behaviors and market dynamics remains to be seen.
Source: Coindesk
