Pro Investor Newsletter: Why This Week Produced the Clearest Bottom Signal Yet

The Pro Investor Newsletter is your go-to resource for staying updated with the crypto market and price-sensitive news. Emailed monthly. Below is a copy of the newsletter. If you are a Pro member and not receiving the Pro Investor Newsletter, please contact us through our member chat at the bottom right corner of your screen.

Foreword: Strongest Sign Yet of Market Bottom

The old stock-market adage of “sell in May and go away” was just as applicable to crypto last month. It was the quietest month in crypto I’ve experienced since the doldrums of 2019.

As I mention below in my recap of May, there are overwhelming signs that the market is bottoming.

In this foreword, I want to explain what I believe is the strongest sign that the worst of the bear market is over: very bad news failed to push prices lower.

Let’s go back a year. It’s June 9, 2022. You and me are talking about crypto.

You propose this scenario to me: On consecutive days, (i) the world’s largest crypto exchange (i.e. Binance) and the most compliant exchange (i.e. Coinbase) would each be charged by a U.S. federal agency with violating a variety of securities laws, and (ii) in these lawsuits were allegations that some of the largest cryptocurrencies (e.g. SOL, MATIC, BNB, ADA) were securities.

You then ask me this: How would markets react?

My (very confident) answer: The market will crash by 25–30% across those two days.

Snap back to today.

The above scenario actually happened this week.

If you proposed the same scenario to me last weekend before these lawsuits dropped, I’d still have predicted a market-wide decrease of 10% across the two days.

Well, I would’ve been wrong.

The crypto market actually rallied on the news. After an initial sell-off, the dip was aggressively bought, resulting in prices being higher than prior to the lawsuits being filed.

I can’t understate the importance of this price action.

This price response exemplifies a market that’s bereft of fickle, easily swayed holders.

Everyone who would’ve sold after bad news, has already done so after ample opportunity provided by the likes of Terra, Three Arrows, BlockFi, FTX and Celsius.

So, we’ve bottomed. Great. Now what?

Crucially, I’m not saying a bull market is imminent. Prices can still fall in the short term if certain events happen, as covered below in the June preview. Plus, I still think it’ll be many months until new buyers arrive en masse.

However, after this week’s surprising price action, it’s obvious to me that the time to start accumulating altcoins is fast approaching.

In these newsletters, I’ve said all year that I’m accumulating BTC and ETH, and not buying altcoins yet. I’m glad I haven’t. Year to date, nearly all of them have underperformed BTC and ETH.

What I saw this week was enough to get me very interested in buying some of the altcoins I’ve been shortlisting in recent months. My plan is to start accumulating a long-term position in SOL, and possibly some of the others, by the end of this month.

Regarding my take on the lawsuits and the allegations in them, I’m not surprised. They are consistent with what the SEC has said for a while now. For reasons stated in the June preview below, I’m far more concerned about the allegations against Binance than Coinbase.

Matt Willemsen
Head of Research & Content

May Recap: Calm Before the (SEC-Induced) Storm

As predicted, the crypto market fell in May. This was the first monthly decline for the market (-5.3%) and BTC (-6.9%). Notably, ETH posted its fifth consecutive monthly gain (+2.3%).

In May, price volatility was noticeably low, project announcements were sparse, and sentiment indicators were negative—all telltale signs of the bottom phase of a market cycle.

The month was also quiet from a news standpoint. The only noteworthy development was Hong Kong introducing a licensing regime for crypto exchanges, a positive move.

In the opening days of June, though, two of the most significant pieces of industry news unfolded.

SEC vs Binance (Jun. 5): The SEC charged Binance, Binance.US and its CEO with violating several U.S. securities laws. This is significant for many reasons, but mainly because Binance—by far the world’s largest crypto exchange—is being accused of fraud and wash trading. If these allegations are found to be true, it’d further tarnish the crypto industry and asset class, hurting the possibility of friendly legislation and mass adoption.

SEC vs Coinbase (Jun. 6): The SEC charged U.S.-headquartered Coinbase with operating an unregistered securities exchange and violating other securities laws. As opposed to the Binance lawsuit, this case is significant more so as it reinforces just how hostile areas of the U.S. government have become against crypto.

For more on these cases and their significance, read our posts from earlier this week:

• Prices Crash As SEC Sues Binance: What It Means For Long-Term Investors
• Binance Concerns & Importance of Self-Custody

June Preview: Why The Binance Case Is Far More Concerning

To state the obvious, the SEC’s lawsuits against Binance and Coinbase will dominate the conversation for the rest of June.

Eventually, the newness of these lawsuits will fade and updates will become less frequent. Assuming the SEC and both exchanges aren’t interested in settling, it will probably take at least a few years for these cases to close. Short-term, though, this is what’s next for each case:

SEC vs Binance: The judge has ordered Binance to respond to the SEC’s motion for a temporary restraining order (TRO) on or before June 12. The TRO hearing is set for June 13. Judges typically make their ruling on TROs during the hearing or shortly after.

SEC vs Coinbase: From the date of the SEC’s filing of the lawsuit (i.e. Jun. 6), Coinbase must respond within 21 days or, assuming the court permits it, 60 days.

If the judge approves the SEC’s request for a TRO—resulting in, among other things, the freezing of Binance.US assets—this may trigger another wave of user withdrawals from Binance and Binance.US, and possibly a temporary market sell-off.

Compared to the Coinbase legal battles, Binance’s are far more concerning and potentially price-sensitive. Of the several reasons why, two are particularly notable:

1) Criminal charges may very well be laid against Binance and its CEO by another federal agency such as the Department of Justice (DoJ).

2) The unknown over Binance’s liquidity and, even worse, solvency. If Binance suffered more short-term blows, such as a DoJ lawsuit, the exchange would presumably see another wave of user withdrawals. (Encouragingly, Binance has sustained these in the past, but with it being a private entity—unlike Coinbase—we simply do not know the status of its financial health.)

Ultimately, the only people who know the facts are certain Binance employees. Therefore, to minimise risk and stress, we recommend withdrawing your cryptocurrencies from Binance and other exchanges sooner rather than later. (Read our Guide to Storing Your Cryptocurrency for more.)

For more on the state of the crypto market, altcoins and the global economy, click the relevant links below to go to our new monthly member-only reports.

Kind regards,

Collective Shift