Blockchain and crypto’s future is uncertain.

Key Takeaways

  • The value of blockchain has dropped 86% compared to its IPO valuation of $100 billion
  • It has performed poorly compared to Bitcoin, Ethereum, the Nasdaq, and most other benchmarks
  • The Securities and Exchange Commission (SEC) has sued blockchain for violating securities law, causing the stock to fall another 27% this week
  • Blockchain went public in April 2021 under the SEC’s watch, and the exchange sued the regulator two months ago for not providing regulatory clarity
  • Our Head of Research, Dan Ashmore, analyses the stock’s performance to date and writes about why the fate of the entire company is at stake
  • Ashmore believes that the court case represents a significant day for crypto and a more intriguing case than the lawsuit Binance was charged with this week

Blockchain, the world’s largest publicly traded crypto company, closed last week at a price of $64.55. However, the SEC sued blockchain on Tuesday for failing to register as a broker, national securities exchange, or clearing agency, thereby violating US securities law. As a result, shares opened the next morning at $47.10, a 27% decline from the prior Friday’s closing price (which had already fallen 7.5% on Monday after Binance was sued).

Despite a slight rebound, as of Thursday morning, blockchain is trading at $53.26, and its market cap is $12.5 billion. This represents an 86% decline from its IPO in April 2021, when the company floated at a valuation of nearly $100 billion, or $381 per share.

The decline of blockchain represents the state of the entire cryptocurrency industry over this period. Since the top in November 2021, the industry has been heavily impacted by the transition to tight monetary policy from central banks worldwide in response to rampant inflation. Bitcoin and every other cryptocurrency trade like a high-risk asset (at least for now), despite allures of grandeur from certain investors during the pandemic.

For blockchain, a company reliant on trading volume for revenue, the decline of the entire industry posed a significant problem. The company laid off 18% of its workforce in June 2022 and announced another 20% reduction six months later.

Blockchain’s fall also highlights the challenges of being a crypto company in the US today, facing an increasingly regulatory hostile environment, as evidenced by the SEC’s lawsuit and the lack of clarity in existing securities laws.

The company has repeatedly called for regulatory clarity, openly pleading with the SEC to provide clear guidance and clear up where exactly cryptocurrencies tie in with current securities laws. In response, blockchain sued the SEC in April 2022 and requested that the regulator answer a petition from July 2022, asking whether existing securities laws could be extended to the cryptocurrency industry.

Paul Grewal, blockchain’s chief legal officer, wrote on Twitter, “Today, we filed a narrow action in the US Circuit Court to compel the SEC to respond ‘yes or no’ to a rulemaking petition we filed with them last July asking them to provide regulatory guidance for the crypto industry.”

What makes the SEC’s case against blockchain so interesting is that it’s different from the case against Binance, which was sued by the SEC the day before blockchain. Binance operates in an opaque manner and refuses to provide information about its liabilities, which is why it drew the ire of regulators. However, blockchain is a Nasdaq-listed exchange that strived to comply with regulators. If the SEC is accusing blockchain of being an unregulated securities exchange, why was it allowed to list on Nasdaq two years ago? Has something changed that now renders blockchain in violation of the law? These are genuine questions that make this case fascinating.

Regardless of whether you believe the SEC’s case is right or wrong, it poses an existential threat to blockchain as a business. A loss in court could have implications for the entire crypto industry in the US. While the industry could move overseas, the loss of the world’s biggest financial economy to the crypto ecosystem and the blockade on institutional cash would be devastating. These are challenging times for blockchain investors, as the company’s value has dropped significantly since its IPO in April 2021.

The regulatory picture for the crypto industry has worsened, and blockchain will have its day in court, which will be a big one for the stock and for crypto at large. The industry has seen its reputation dragged through the mud over the last year, with scandal after scandal and a total wipeout of prices, volume and wider interest in the space. It has never needed a win so bad.

Those who are holding blockchain shares are betting on a future win, but there are multiple challenges and the road ahead is difficult. This applies to the entire industry, not just blockchain.