First Mover Asia: BitMEX Saga Leaves Lingering Regulatory Questions, Bitcoin Falls
Arthur Hayes and his BitMEX co-founders must each pay a $10 million fine, but contesting the case against them might have clarified which financial regulatory agency should have primary oversight of crypto; cryptos had a rough weekend.
Good morning. Here’s what’s happening:
Prices: Bitcoin and ether plummeted over the weekend as investors continued to fret about rising interest rates and the possibility of a recession.
Insights: The BitMEX case leaves regulatory issues unsettled.
Technician's take: A weekly close below $36,247 for BTC could yield further downside targets.
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Bitcoin (BTC): $34,444 -2.1%
Ether (ETH): $2,553 -2.9%
|Solana||SOL||−5.2%||Smart Contract Platform|
|Cosmos||ATOM||−4.7%||Smart Contract Platform|
|Polygon||MATIC||−4.4%||Smart Contract Platform|
S&P 500: 4,123 -0.5%
DJIA: 32,899 -0.2%
Nasdaq: 12,144 -1.4%
Gold: $1,881 +0.3%
A tough weekend for cryptos
The new reality of higher interest rates and heightened recessionary fears continued to ripple through crypto markets over the weekend.
Bitcoin was recently trading at about $34,200, a more than 2% drop, and its lowest mark since last July. Even then, it was doing better than most major altcoins in the CoinDesk top 20 by market capitalization. Ether was changing hands at about $2,550, off roughly 3% over the same period and its lowest point since early March. Terra's luna token tumbled over 8.5% at one point and SOL and CRO were each down about 5%. AXS and TRX shone among the sea of red, rising over 1.5% and 5.5%, respectively.
"BTC has continued to be weighed down by macro pressures and the general market sentiment," Joe DiPasquale, CEO of crypto fund manager BitBull Capital, wrote to CoinDesk. "The FOMC (Federal Open Market Committee) resulted in volatility, but the upside move was short-lived."
Crypto's declines dovetailed with equity markets, which closed down Friday, with the tech-heavy Nasdaq sinking 1.4% a day after tumbling 5% – the latter its worst performance since 2020. The S&P 500 and Dow Jones Industrial Average fell in smaller increments, but continued their downturn following the U.S. central bank's widely expected, half-point interest rate hike last Wednesday. A day later, the Bank of England (BoE) continued its own more hawkish monetary path, raising rates a quarter of a point to their highest level in 13 years.
It was BoE's fourth-straight interest rate increase since December. Central banks in other parts of the world have followed similar strategies to tame inflation that has reached 40-year highs and threatens to rise further amid the fallout from Russia's invasion of Ukraine.
Meanwhile on Friday, the latest U.S. Labor Department jobs report, which showed a better-than-expected gain of 428,000 jobs in April, underscored concerns that a historically tight jobs market would increase wages and accelerate inflation. During the first quarter of this year, U.S. employers paid workers 1.4% more on average than during the prior three-month period, according to the report. It was the biggest jump in two decades.
DiPasquale expects bitcoin to decline further, especially as monetary policy continues to contract, but doesn't see the largest crypto by market cap falling below the $25,000 to $30,000 range, even if a downturn reaches extreme proportions. But he also noted that "a bounce in the near term cannot be ruled out" as May's options expiry of approximately $1.3 billion on the bitcoin futures exchange Deribit approaches.
Should the BitMEX co-founders have fought the case against them?
Arthur Hayes and BitMEX both decided, separately, that they would plead guilty to the charges before them and pay fines to settle their respective cases with the feds, with Hayes and BitMEX’s other co-founders each being ordered to pay a $10 million fine at the end of last week.
This, as we’ve discussed before, is too bad, because the case against them relied on a novel interpretation of the Bank Secrecy Act and a confirmation that the Commodity Futures Trading Commission (CFTC) really has extraterritorial authority. This type of litigation is expensive and stressful, and so it's understandable why someone might want to call it quits instead of going through with it.
But now, as Hayes awaits sentencing, we are no further ahead in obtaining regulatory clarity than we were before. Terraform Labs’ case against the U.S. Securities and Exchange Commission is working its way through the legal system, but it will be months if not longer before it’s in front of a judge. In the meantime, as Sam Bankman-Fried, the founder of the FTX crypto exchange, pointed out in a recent interview, the “power struggle” between the CFTC and the SEC has resulted in the regulatory environment being stalled.
“We’re not actually in a place with more federal oversight than we were in a year ago,” he told Blockworks, arguing that if the SEC and CFTC could agree on who is responsible for licensing cryptocurrency exchanges it would solve “60% of the problem.”
The CFTC claims that the Commodity Exchange Act of 1934 gives it authority over crypto, which it calls a currency, and thus allows it to regulate the derivatives market for crypto (which is what BitMEX specializes in). At the same time, the SEC’s regulatory mandate comes from testing if a specific cryptocurrency or a product involving the coin constitutes a security.
“The fact remains that digital assets like cryptocurrencies do not fit neatly into the SEC’s regulatory framework,” Bo Howell, a Ohio-based securities lawyer wrote in a post explaining the contested authority over crypto.
In theory, one should regulate the markets and one should regulate the commodity itself, but a pathway needs to be set first. SEC Chairman Gary Gensler said last month that it’s a work in progress, but hasn’t given a road map of when something like a memorandum of understanding would be released for regulating the “intertwined” market.
Ideally, this would be through legislation – in previous interviews, ex-CFTC enforcement attorney Braden Perry has warned about the dangers of regulation by enforcement, as opposed to a defined regulatory framework – but another alternative would be via legal precedent.
If Hayes or BitMEX had decided to fight the feds, they might have actually forced a resolution in the case of which agency takes the lead on regulating the crypto market.
Bitcoin broke below a short-term uptrend on Friday as momentum signals turned negative. The cryptocurrency could see further declines toward $30,000, which is near the bottom of a yearlong trading range.
BTC failed to hold $40,000 over the past few months and is down by 47% from its all-time high of nearly $69,000 last November. The long-term uptrend has weakened, which suggests upside remains limited this year.
On the weekly chart, BTC is at risk of breaking below its 100-week moving average of $36,247. A second weekly close below that level could yield downside targets toward $30,000 and then $17,823 (a roughly 80% peak-to-trough decline, on par with the 2018 crypto bear market).
Still, May is typically a seasonally strong period for stocks and cryptos. That could keep short-term buyers active at lower support levels, albeit lacking conviction to shift the recent downtrend in price.
8:30 a.m. HKT/SGT(12:30 a.m. UTC): Jibun (Japan) bank services PMI (April)
10 a.m. HKT/SGT(2 a.m. UTC): China imports/exports (YoY/April)
10 a.m. HKT/SGT(2 a.m. UTC): China trade balance (April)
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Other voices: An Appalachian town was told a bitcoin mine would bring an economic boom. It got noise pollution and an eyesore. (Washington Post)
Said and heard
"Of course, metaverses will face the issue of copycat proliferation. There are dozens of metaverse projects spinning up right now, and as Multicoin Capital's Tushar Jain recently pointed out, they can all sell 'land.' But the issues raised by Nir and others in recent days are much more fundamental, and may point to flaws in the model regardless of the competitive landscape. Above all, the idea that geographic space in a virtual world will accrue value in the same way as real-world land seems to miss some truly fundamental distinctions. (CoinDesk columnist David Z. Morris) ... "All 27 E.U. (European Union) countries must agree to this dramatic move. Hungary and Slovakia – two of the nations most dependent on Russian energy – are holdouts on the deal. It is likely these nations will get a much longer timeline for a complete ban. More importantly, the latest E.U. move does not say anything about banning Russian natural gas imports, meaning plenty of E.U. money will still be flowing to Putin for now. But the E.U. should move swiftly and decisively this week to enact the oil ban and send a message to Putin that the atrocities Russia is committing in Ukraine are not acceptable." (Washington Post) ... "If you are looking for patterns in the market’s wild swings, the answer is simple: The financial markets are coming to grips with a stunning policy change by the Federal Reserve. Over the last two decades, financial markets may have become so accustomed to encouragement from the Fed that they just don’t know how to react, now that the central bank is doing its best to slow down the economy." (The New York Times)
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