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Why is the crypto market down this week?

The crypto market is down this week, with the total market capitalization falling by 4.4% to reach its lowest point since June 14 at $1.02 trillion. This movement has increased Bitcoin market dominance as regulatory uncertainty hangs over the altcoin markets. 

Despite the hype surrounding recently filed Ether and BTC exchange-traded funds (ETFs), the United States Securities and Exchange Commission (SEC) continues to delay decisions on the financial instruments.

Total crypto market cap. Source:TradingView

Here are three reasons why the crypto market is down this week.

ETF delays result in crypto investors choosing the sidelines

Investor expectations of a spot BTC ETF approval had been high, especially with heavyweight endorsements and applications from BlackRock and Fidelity. However, these hopes were dashed as the SEC continued to delay its decision, citing concerns over insufficient safeguards against manipulation.

Despite the delays, VanEck and ARK Invest have officially applied for spot Ether ETFs. The Sept. 6 filings start the clock for the SEC to make a decision. An estimated deadline for this decision is May 23, 2024.

Although Grayscale was able to win against the SEC in a U.S. appeals court, the Grayscale Bitcoin Trust (GBTC) discount is still hovering at 20% as the SEC weighs appealing the court’s decision. While analysts believe ETFs are bullish in the long term, the market has not sustained such short-term momentum.

Regulatory uncertainty and lawsuits weigh on crypto

Financial difficulties within the Digital Currency Group (DCG), which operates GBTC, have also had a negative impact on investor sentiment. A subsidiary of DCG is grappling with a debt exceeding $1.2 billion to the Gemini exchange.

Additionally, Genesis Global Trading, which declared bankruptcy due to losses stemming from the collapse of Terra and FTX, is now suing DCG, which is run by Barry Silbert. This precarious situation could lead to forced selling of positions in the Grayscale Bitcoin Trust if DCG fails to meet its obligations.

Further compounding the market’s woes is pending regulation. The SEC has leveled a series of charges against Binance, the crypto market’s largest exchange, and its CEO, Changpeng Zhao, alleging misleading practices and the operation of an unregistered exchange.

The largest crypto by market cap aside from Bitcoin, Ether also lacks clarity around its legal status. While the Commodity Futures Trading Commission chair believes Ether is a commodity rather than a security, there is currently no clarification from the SEC.

While the crypto market continues to grapple with regulatory uncertainty, the Ripple chief technology officer believes the tide is turning on the U.S. regulatory environment.

Liquidations and low volume drive the crypto market lower

The start of September ignited a wave of Ethereum leveraged liquidations, with $37 million in liquidations occurring in the first week of this month.

Ether long liquidations. Source: CryptoQuant

The rush of Ether liquidations comes as the entire crypto market is shedding total value locked (TVL) and volumes continue to decrease. The crypto market TVL reached a 2023 high on April 15 at $53 billion, while the current value is at $37.7 billion, reflecting a loss of over $15 billion.

Crypto market volume and TVL. Source: DefiLlama

Some analysts believe the renewed strength of the U.S. dollar, which hit a six-month high on Sept. 7, will continue to be a danger to crypto assets.

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