Why is the crypto market down this week?

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The crypto market is down this week, with the total market capitalization falling by 4.4% in 7-days to reach its lowest point since June 14 at $1.02 trillion. This movement has increased Bitcoin (BTC) market dominance as regulatory uncertainty hangs over the altcoin markets. 

Despite the hype surrounding recently filed Ether (ETH) and BTC ETFs, the United States Security and Exchange Commission (SEC) continues to delay decisions on the financial instruments.

Crypto market total 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 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 United States Appeals Court, the GBTC discount is still hovering at 20% as the agency 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.

Related: How to protect your crypto in a volatile market: Bitcoin OGs and experts weigh in

Regulatory uncertainty and lawsuits weigh on crypto

Financial difficulties within the Digital Currency Group (DCG) that operates the Grayscale Bitcoin Trust 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 “CZ” 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 U.S. 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, Ripple (XRP) CTO 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 occuring in the first week of this month.

Ethereum long liquidations. Source: CryptoQuant

The rush of Ether liquidations comes as the entire crypto market is shedding total value of funds locked and volumes continue to decrease. The crypto market TVL reached a 2023 high on April 15 at $53 billion while the current USD 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 6-month high on Sept. 7 will continue to be a danger to crypto assets.

Related: Bitcoin bids move to lowest since March as BTC price dips under $25.7K

As the cryptocurrency market navigates through these multifaceted challenges, the ebb and flow of various economic factors and regulatory developments will undoubtedly continue to shape its trajectory in the coming months.