The PayPal request for verification shouldn't affect your traffic, but I think it will affect your cashflow as I'm pretty sure there are restrictions on withdrawing funds or sending payments (you should still be able to receive payments, though).

A sudden drop in traffic / sales is a fairly common issue, and unfortunately there is no "fix", just a few little things you can try in the hope that it helps (updating listings - titles, photos etc, expanding range, waiting....). I know that's not much help, but while it does happen to quite a few sellers, there's no guaranteed fix.