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Why is crypto declining?

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In addition, New York State Attorney General Letitia James filed suit on Thursday against crypto exchange KuCoin, arguing that certain coins traded on KuCoin should have been registered as securities.

Bitcoin (BTC) is down nearly 11% on the week, while Ethereum (ETH) is down more than 9%. Cardano (ADA), Polygon (MATIC) and Dogecoin (DOGE) are also seeing steep losses on the week. The crypto winter is far from over, it appears.

Silvergate announced on Wednesday that it would write off its assets and wind down its business due to rising U.S. interest rates. The bank continues to suffer from the collapse of its key client, FTX, in November 2022

Customers pulled more than $8 billion out of Silvergate’s coffers since the collapse of FTX in November 2022. In fact, the bank held a mere $4.6 billion in cash at the end of last year.

In recent weeks, other major crypto players like Coinbase, Galaxy Digital, Paxos and Circle have scrambled to distance themselves from Silvergate, driving the bank to close its Silvergate Exchange Network, a major crypto payment hub.

Shares of Silveragate had fallen nearly 90% year to date before the bank shut its doors.

In her lawsuit, New York State AG James argued that cryptocurrencies like Ethereum traded on KuCoin, should have been registered as securities. This suit is the first time that a U.S. regulator has claimed in court that ETH is a security.

Under the Martin Act, an anti-fraud law in New York State, the attorney general can bring civil and criminal charges against the exchange due to the fact that their prices are all dependent upon the efforts of others, such as ETH co-founder Vitalik Buterin.

The lawsuit echoes claims made by SEC Chair Gary Gensler, who has argued that Bitcoin is a security. If this theory is born out in court, it would place cryptocurrency regulation under the loving care of the SEC.

Gensler famously said in June 2022 that crypto exchanges that don’t cooperate with the SEC are “operating outside of the law” and may be at risk of enforcement action.

In an unfortunate choice of timing, the U.S. government moved more than $1 billion in Bitcoin to new wallet addresses at the same time that Silvergate was melting down, including one owned by crypto exchange Coinbase.

This led to crypto traders fearing that the U.S. government might be poised to release a portion of this confiscated Bitcoin onto the open market.

Although that action wouldn’t follow past precedents set by the government’s handling of digital assets, the fears of a supply glut haven’t stopped Bitcoin’s price from tumbling in recent days.

When buying the dip, crypto investors should proceed with extreme caution.

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