Despite the frequency of the SEC’s complaints against centralized crypto exchanges and platforms, last week’s lawsuits against Coinbase and Binance.US took a hefty toll on the crypto market. This was foreshadowed by the watchdog agency’s entanglement with Bittrex, Kraken, Gemini, and Paxos this year alone.

The Coinbase lawsuit is significant as the SEC inferred that nearly all altcoins are unregistered securities. This plunged the altcoin market into double-digit losses over the week, from MATIC (-27%) and SOL (-29%) to ADA (-25%) and BNB (-23%).

The state of the crypto market following the SEC’s pursuit of Coinbase and Binance’s US affiliate. Only stablecoins and Bitcoin held up to the selling pressure triggered by Robinhood’s de-listing of major altcoins.

Overall, the altcoin market cap (without Bitcoin) has shrunk by $35 billion since Friday. This was largely spurred by market makers exiting Binance.US.

Binance.US in a Liquidity Drought

Last Friday, four days after the Binance.US lawsuit dropped, accounting for thirteen civil charges, including wash trading, the exchange halted USD deposits. This was not surprising. Market makers and traders must supply liquidity for such a service to operate. Measured by market depth accounting for 17 top tokens and stablecoins, the liquidity drained up to 77%.

The lawsuit ripples also transferred to Binance international, having its market depth shrunk by nearly 7%. Yet, when contrasted between asset inflow and outflows, Binance’s netflow is rising, at present $514.7 million. This suggests that traders are starting to view the offshore exchange as a haven.

Compared to Binance, Coinbase’s market depth erosion was much more severe, having shrunk by -16%. Meanwhile, Binance.US lost its US crypto market share from 20% to 4.8%., according to Kaiko data. This benefited Coinbase, which now has the dominant market share of 64% compared to 46% before lawsuits.

Unfortunately for Coinbase, the SEC neutralized this market share uptick, calling it an unregistered broker that “has made billions of dollars unlawfully facilitating the buying and selling of crypto asset securities.” Accordingly, COIN stock is down -12.74% over the week but still up 39% year-to-date.

Will the US Crypto Market Fade?

There have been many signals that regulators view the crypto market unfavorably—the SEC refused every Bitcoin ETF application, which barred capital inflows. Concurrently, this stop-gapped the rise of the crypto market as a whole, tied to Bitcoin price moves.

In March, both crypto-friendly banks went down, Silvergate and Signature. But their departure was so suspicious that it prompted a paper called Operation Choke Point 2.0: The Federal Bank Regulators Come For Crypto, by Cooper & Kirk law firm.

With crypto platforms losing banking access, this benefited the Euro, which increased its CEX market share from 9% to 18%, while the USD market share on CEXes dropped from 90% to 82%. Amid the US crypto crackdown, Customers Bancorp Inc. in Pennsylvania is filling the gap alongside Swiss and Asian banks.

“Now it’s more of a handful of names, where you have to go and do your own due diligence because they are not as well-known, at least for the crypto community,”

Rich Rosenblum, co-founder of crypto trading platform GSR to Bloomberg

At the end of the line, the success of the crypto market in the US lies at the feet of lawmakers. The SEC has been using the legislative void to rule by enforcement, which heavily emphasizes protracted legal battles with uncertain outcomes.

JPMorgan’s Thursday report notes that if US lawmakers don’t step in, we will see a steady dwindling of crypto activity in favor of more friendly markets, such as Singapore, UAE, Hong Kong, and the Eurozone. Case in point, Hong Kong’s Legislative Council member, Johnny Ng, had already invited Coinbase and other global crypto players to take advantage of regulatory clarity.

This article originally appeared on The Tokenist

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