Why Coinbase and Crypto Are Down Today

What happened 

The crypto market fell on Monday following a strong month for the industry. Coinshares reported that there was $474 million of inflows to the crypto market in July, reversing $481 million in outflows in June. 

Bitcoin (BTC -2.16%) was a big mover, falling 5% as of 2:30 p.m. ET and Solana (SOL -6.34%) fell 5.5% over that time. The drop in crypto led to Coinbase Global (COIN -0.41%) dropping as much as 5.6% and Silvergate Capital (SI -1.66%) falling 6%. 

So what 

Headlines today were focused on the downside of crypto, with an alleged Ponzi scheme getting 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 appears the SEC is ramping up enforcement in crypto.

Crypto exchange CoinFlex also announced that it let “a significant number” of people go across the company. The goal is to reduce costs by 50% to 60% in order to try to remain solvent. CoinFlex froze withdrawals when it accused Roger Ver of defaulting on a $47 million loan and the company is scrambling to survive. 

It hasn’t helped that U.S. stock markets are trading lower on Monday. The move isn’t sharp, but this is another big earnings week and investors are worried the news may not be bullish enough to keep funds flowing into crypto. 

Now what 

Today’s move is little more than normal volatility in the crypto market. But investors can take a few things away from the last few weeks. 

One is that the SEC is taking enforcement seriously. It may take years to actually litigate cases, but with the SEC circling it’s easy to see how crypto investors can get nervous about the future. 

A second takeaway is a rapid turnaround in investor sentiment during the crypto winter. A lot of investors likely thought crypto was in for a multiyear downtrend, but that quickly flipped despite a negative gross domestic product figure and rising interest rates last week. 

Finally, earnings season is in full swing and that’s going to drive volatility in trading. Silvergate reported on July 19 and said net income had jumped from $20.9 million a year ago to $38.6 million, despite the weak market. Coinbase will report on Aug. 9 and results may not be great, but investors will be looking for momentum in the services business and cost cuts to start taking effect. 

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

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