Crypto Quarterly is The Logic’s recurring series assessing the overall state of the crypto market, with a focus on Bitcoin, Ethereum, Flow and Cosmos’s Atom, four cryptocurrencies with strong ties to Canada.

All it took was three little words from the U.S. Securities and Exchange Commission to tank the value of two major Canadian-linked digital assets: “Crypto asset securities.”

The SEC named Atom, the native token of the Cosmos blockchain protocol co-founded by Toronto’s Ethan Buchman, and Flow, the token of the eponymous blockchain closely linked to Vancouver NFT company Dapper Labs, in lists of crypto assets the regulator believes are securities, on June 5 and 6. The lists can be found in the SEC’s complaints against Binance and Coinbase, which allege the crypto-trading giants violated U.S. securities laws by allowing Americans to trade the digital assets without registration.

Bitcoin and Ether initially fell following the regulatory move, but recovered by the end of the quarter. Atom and Flow continued to drop, however, finishing the quarter that ended June 30 down about 20 per cent and 48 per cent, respectively.

Being named a security by the SEC can have serious consequences, as the former tech darling Kik found out years ago when the regulator sued the Waterloo, Ont.-based messaging app over an initial coin offering for its crypto asset Kin. That resulted in the company laying off all but a skeleton staff in 2019. The SEC argued the token sale was an illegal securities offering.

However, Matthew Burgoyne, co-chair of the digital assets and blockchain group at Osler, Hoskin & Harcourt in Calgary, noted the SEC’s interpretation in the Binance and Coinbase complaints is far from conclusive and could be challenged in court. The value of Flow and Atom jumped last week after a New York judge ruled Ripple’s XRP token is not a security when sold to the broader public on crypto-trading platforms, an interpretation that could undermine the SEC’s cases.

“I don’t think it’s a death blow,” he said. “I don’t think it’s going to sink the whole project.”

Crypto venture funding continued the downward trend it’s been on since the bear market began in early 2022, but PitchBook fintech analyst Robert Le said he doesn’t think the recent U.S. enforcement crackdown had much to do with it. He said venture funding is down across sectors as interest rates rise and the public’s focus shifts to generative AI, which has replaced crypto at the top of the hype cycle.

Le said he expects crypto venture funding will start increasing later this year. Meanwhile, opportunities to raise financing remain for strong companies, he said.

“There are going to be some companies that are doing pretty well in this time. They will be able to raise funding, and they’ll be able to raise pretty decent rounds.”

Among those doing pretty well in this environment are Bitcoin mining companies. Shares of Toronto-based Hut 8, which is in the process of closing a merger with Miami-based US Bitcoin, finished the quarter up a whopping 82 per cent, with fellow Canadian crypto miners Bitfarms and Hive up 52 per cent and 36 per cent, respectively.

Earlier this month, Vancouver-based Hive announced a name change from Hive Blockchain to Hive Digital Technologies, which it said is to better reflect its focus on using its equipment for AI, cloud computing and other applications. The AI boom has helped some crypto miners diversify their revenue by repurposing their expensive and powerful equipment, which is good for the computationally heavy workloads that both those industries require.

Crypto-mining companies have been benefiting from a run up in the price of Bitcoin, which uses the energy-intensive process to add transactions to the blockchain. Bitcoin mining stocks tend to outperform the price of Bitcoin when it goes up, but also lose disproportionately more value when it goes down.

Bitcoin earned an unexpected addition to its roster of advocates earlier this month. Speaking to Fox Business, BlackRock CEO Larry Fink said the digital asset could “revolutionize finance,” a far cry from his previous crypto-skeptical comments.

BlackRock’s iShares unit applied in June to launch a spot Bitcoin exchange-traded fund in the U.S. To date, the SEC has rejected all spot Bitcoin ETF applications, but BlackRock’s gravitas and track record at getting ETF applications approved has revived hopes in the industry.

“The firm’s promotion of Bitcoin heralds the realization of one of crypto’s longest running mantras: ‘The institutions are coming,’” wrote Galaxy Digital head of research Alex Thorn in a note earlier this month. “Now it’s official—the institutions are here. And this institution, BlackRock, is the maven of mainstream adoption.”