KuCoin Outflows Surge After Indictments – Will KCS Price Fall to $10?

Key Takeaways

• The Commodity Futures Trading Commission (CFTC) filed a civil lawsuit against KuCoin.
• The KCS price has fallen over 15% since the announcement became public.
• Does this lawsuit have similarities to that against Binance, and will the KCS price react the same way?

The Commodities Futures Trading Commission (CFTC) has accused  KuCoin of allowing US customers to trade commodities and fail to implement customer identification procedures. A large number of outflows from KuCoin took place in the hours after that.

Will this announcement mark the beginning of a long-term downtrend for KCS, or is it just a temporary setback followed by another significant rally?

Why Did the CFTC Charge KuCoin?

The CFTC alleges KuCoin has violated the Commodity Exchange act and other regulations. More importantly, it has dealt in off-exchange commodity futures transactions and failed to implement an effective customer identification and money laundering procedure.

Even though KuCoin has implemented know-your-customer (KYC) compliance procedures, the CFTC believes they are a sham. The CFTC alleges KuCoin allowed US customers to trade commodities and their derivates on the platforms.

Interestingly, the move suggests the CFTC could consider cryptocurrencies a commodity. This is in contrast with the SEC, which says they are securities.

There are numerous similarities between this case and the one against Binance and its CEO, Changpeng Zhao, who eventually settled the charges by way of a $4 billion fine.

Meanwhile, the US Department of Justice (DoJ), has filed a separate criminal indictment against entities associated with KuCoin.

Significant KuCoin Outflows Come After Announcement

Shortly after the announcement, a notable number of outflows from KuCoin followed. These moves were made by retail investors,  who were scared of a potential FTX scenario.

Since the announcement, there has been a withdrawal of over $800 million from official KuCoin assets, which now stand at $5.2 billion. Some other reports suggest the total net outflows  are even larger at $1.12 billion.

https://twitter.com/nansen_ai/status/1772922486591734026?ref_src=twsrc%5Etfw

Ki Young Ju, the CEO of on-chain analytics firm Crypto Quant does not believe this is something to be concerned about. This is because, he says, the exchange has sufficient reserves  to cover customer funds. Moreover, the reserves are organic and are not mixed with customer funds, unlike those of FTX.

In any case, the price of KuCoin’s native token KCS fell over 15% due to the negative news.

How Will This Affect the KCS Price?

Even though the downward movement accelerated after the lawsuit, the KCS price had already been falling since reaching a high of $15.96 on March 13.

Bearish divergences in the two-day RSI and MACD (green), which often precede downward trends, came ahead of the drop.

The wave count suggests that the KCS price completed a five-wave upward movement starting in September. If so, the March 13 high marked the end of this movement, and the KCS price has now started an A-B-C corrective structure.

The most likely level for the correction to come to an end is at $9.75. It is created by the 0.5 Fibonacci retracement support level and a horizontal support area.

Temporary Setback Before Resurgence

Since there do not seem to be any issues with the liquidity in KuCoin, it is possible the KCS price decrease is only temporary, caused by the panic arising from the negative news.

In that case, KCS price recover, similarly to BNB after Binance settled its lawsuit. When that happened, in November 2023, BNB traded at $240. It currently trades at $580.