Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

The U.S. SEC Gets Serious About Crypto Regulation; Bifurcation On The Horizon

By Andy HechtCryptocurrencySep 20, 2021 05:16AM ET
www.investing.com/analysis/the-us-sec-gets-serious-about-crypto-regulation-bifurcation-on-the-horizon-200602415
The U.S. SEC Gets Serious About Crypto Regulation; Bifurcation On The Horizon
By Andy Hecht   |  Sep 20, 2021 05:16AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

This article was written exclusively for Investing.com

  • The Coinbase Wells notice was a regulatory missile
  • SEC Chairman a fintech expert
  • Protecting the public or defending the status quo?
  • Money: the root of power
  • Expect levels of regulation; Bifurcation on the horizon

Regulation is a thorny issue for global assets and the markets in which they're traded. Before the 2008 worldwide financial crisis, regulation in the commodities markets was not what it is today. Futures markets were regulated, and US market participants had to be careful when dealing abroad.

The Foreign Corrupt Practices Act of 1977 prohibits US citizens and companies from bribing foreign government officials to benefit their business interests. The Act put US commodity traders and raw material producers—as well as consumers—at a disadvantage to many other countries.

There is no division between the government and commodity production in many producing countries. So the only way to do business in many of those areas was to violate the Act, leaving the business in the hands of other market players, notably from China and other countries.

The Dodd-Frank Act tightened regulation beyond the futures market into physical swaps and other transactions. Over the past months, traders have been charged and convicted of spoofing as well as other offenses that are now white-collar crimes.

The regulatory umbrella has expanded over the past decades. It is only a matter of time before it throws shade over the burgeoning cryptocurrency asset class. Moreover, cryptos threaten one of the government’s critical power sources, the money supply.

We should expect regulation with a vengeance over the coming months and years. The higher the crypto asset class’s market cap rises, the faster the rules will appear. We just witnessed what could be the first shot across the bow when the Securities and Exchange Commission (SEC) sent Coinbase (NASDAQ:COIN) a letter warning them against rolling out a new crypto product.

The Coinbase Wells notice was a regulatory missile

On Sept. 7, the day El Salvador officially adopted Bitcoin as its national currency, the price of the leading cryptocurrency reached its most recent peak and reversed lower.

BTC/USD Daily
BTC/USD Daily

Source: CQG

As the daily chart of September Bitcoin futures highlights, the leader of the crypto pack rallied to a short-term $53,125 high, reversed, and fell to a low of $43,704, putting in a bearish key reversal pattern on the daily and the weekly charts for the week of Sept. 7. Bitcoin followed through on the downside, making a lower low at $43,310 on Sept. 13.

One of the reasons Bitcoin dropped by 18.5% on Sept. 7 was that Coinbase, the leading cryptocurrency exchange, received a Wells notice from the Securities and Exchange Commission, informing that the SEC intends to sue COIN in court over its Coinbase Lend program. Lend allows customers holding crypto tokens to lend them to other market participants, creating a yield or interest rate for Bitcoin and other cryptos offered on the Coinbase exchange.

The Wells notice warned Coinbase that the company should think twice before rolling out its Lend program. Moreover, it was a regulatory missile at the asset class that transcends Coinbase.

SEC Chairman a fintech expert

SEC Chairman Gary Gensler is the former Commodities Futures Trading Commission Chairman. He presided over allowing the CME and other futures exchanges to list Bitcoin futures back in December 2017. While the listing came after his tenure at the CFTC, the application was considered during his term. As CFTC Chairman, Mr. Gensler seemed to embrace fintech and the cryptocurrency revolution.

Before he was appointed as the SEC chief, Gensler taught at the Massachusetts Institute of Technology. The subject was fintech. Cryptocurrencies and blockchain are the heart and soul of the evolution of the fintech revolution.

Some market participants logically believed that at the SEC, Chairman Gensler would be a crypto advocate. However, a political agenda could be trumping fintech’s evolution and acceptance.

Protecting the public or defending the status quo?

The SEC and other powers in Washington have stated they wish to protect the public from an unregulated cryptocurrency asset class. Many cite nefarious uses of cryptocurrencies, including their utility for hackers using ransomware to attack systems in the US and worldwide.

In 2021, we have already seen a hack at the Colonial Pipeline and the leading US meatpacking plant. The US government has expressed concerns that cryptos allow criminal forces to operate beyond their reach, creating risks for businesses and individuals.

The first regulatory missile came in the spirit of “protecting the public.” However, it is more a defense of the status quo.

Money: the root of power

We have all heard the saying “money is the root of all evil,” which comes from the Bible’s New Testament, “for the love of money is the root of all evil.”

For governments, money is the root of power. The ability to expand and contract the money supply became a lot easier after abandoning the gold standard. During the 2008 global financial crisis and the 2020 worldwide pandemic, governments dramatically expanded the money supply to stabilize the economy.

If cryptocurrencies were to replace fiat currencies, it would limit or end the government’s ability to address events using monetary policy. Ideologically, the crypto revolution is a challenge to the government’s control of money as the burgeoning asset class embodies a libertarian approach, returning power to individuals at the expense of governments.

Expecting governments to surrender control of the money supply is naïve. Last week, famed hedge fund manager Ray Dalio said of regulators and Bitcoin:

I think at the end of the day if it’s really successful, they will kill it and they will try to kill it. And I think they will kill it because they have ways of killing it.

The bottom line is that the SEC Wells notice sent to Coinbase could be the first missile in a government-sponsored war against the asset class for political instead of regulatory reasons.

Expect levels of regulation; Bifurcation on the horizon

I expect to see a substantial bifurcation in the cryptocurrency asset class as the SEC, Congress, and other US government agencies and branches sink their regulatory claws into the asset class and its technology. There is no doubt blockchain technology has ubiquitous utility and acceptance. The tokens, not so much.

Cryptocurrencies are likely to be tier-one on the risk scale, receiving the harshest regulatory treatment. Bitcoin and Ethereum, the digital currency leaders, are in this class. Stable coins tied to underlying asset values and digital currencies issued by governments are likely to operate under a far looser regulatory regime.

I view the Wells notice as the first regulatory move in a chess game that will develop over the coming months and years. With each correction in the cryptocurrency market, the government is likely hoping it will disappear.

Each time it comes back stronger and rises to new highs, we will likely see increased regulatory and governmental scrutiny. While an overall market cap at just over the $2 trillion level does not pose systemic risks to the financial system, a $10 trillion market cap is another story.

Expect more missiles, which will cause heightened volatility. The market acceptance of crypto continues to grow, but governments are ideologically on the other side of the argument.

Money is the root of power, as control of the purse strings is a critical control element. Do not expect governments to look the other way as the market cap swells.

The U.S. SEC Gets Serious About Crypto Regulation; Bifurcation On The Horizon
 

Related Articles

Crypto Briefing
Polygon Jumps 25% On Korean Exchange Listing By Crypto Briefing - Oct 15, 2021

Upbit has listed the MATIC token for trading. Polygon has rallied over 25% on news that the Korean crypto exchange Upbit has cleared the MATIC token for trading. Polygon Reacts to...

Jason Sen
Crypto Resistance By Jason Sen - Oct 15, 2021

Bitcoin dipped to 55900, holding just above support at 53600/500 as we hit the next target of 58500 and resistance at 59400/600 this morning as predicted. Ripple we are long at...

The U.S. SEC Gets Serious About Crypto Regulation; Bifurcation On The Horizon

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (13)
Joseph Nduku
Joseph Nduku Sep 25, 2021 3:18AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hello
Bobby Jr
Bobby Jr Sep 25, 2021 1:27AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
You've got it wrong Coinbase and the SEC are working together, it was all a big show to scare other exchanges especially the ones that offer APY on your stable coins, the SEC doesn't care about anyone getting APY on your Bitcoin or Ethereum, your high volatility assets, but they will not stand by and allow you to collect such a high APY on your stable coins, because, here's the kicker, it directly competes with the Banks and, the biggest of all, the Bond Market and the SEC will not let anything affect there Overlord's power. And, with pun intended, you can take that to the "Banks". Just wait an watch it play out. You heard it here first.
me ish
me ish Sep 20, 2021 6:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
the US will do what they can to crash the crypto markets, then print a whole tonne more of USD to buy up most of the market for JPM, Morgan Stanley. Blackcock and Vanguard to own and control. What's stopping them, whilst they still have relative control of the global reserve currency. They are fraudster mafia through and through, so this makes total sense for them to do this - probably started already.. One thing is for sure, when they've trashed the crypto market, I'll be buying in at the bottom with the rest of the crooks.
Encrypted Garry
Encrypted Garry Sep 20, 2021 6:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
hello
Ana María Rodríguez Espinoza
Ana María Rodríguez Espinoza Sep 20, 2021 12:26PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
voy
Ajay Uppal
Ajay Uppal Sep 20, 2021 12:26PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
No one needs Crypto except speculators..
Sophia Manson
Sophia Manson Sep 20, 2021 12:26PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Abdullah İpek
Abdullah İpek Sep 20, 2021 11:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Suck my *******SEC
Roger Miller
Roger Miller Sep 20, 2021 11:53AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Of course regulation is coming, but not to protect us naïve individuals who are incapable of making our own decisions, but to protect fiat currencies.  Since the value of fiat currencies, including the US dollar, is based only on belief they can't have competition.
Phil DiMarco
Phil DiMarco Sep 20, 2021 11:52AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The US government is digging it's own grave, by trying to regulate Bitcoin out of existence they are *****the future .. it wont happen in the US every dollar they print brings the system one step closer to collapse
Allen Drewe
Allen Drewe Sep 20, 2021 11:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They are right to protect people from crypto. Its essentially hot air driven by emotion and a misunderstanding of what creates value.
Alexander Engarto
Alexander Engarto Sep 20, 2021 11:51AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
lol oh is that what it essentially is? You could explain what a blockchain is if you tried boomer.
Mahammad Samaila
Mahammad Samaila Sep 20, 2021 6:32AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
yaye il
Sidney Glover
Sidney Glover Sep 20, 2021 6:11AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
@andy really? using the Bible? why are you so worried about regulation? Aren't the coins legit? Aren't the coins decentralized? Why are the 'committees of Bitcoin and others never revealed as the controlling mechanisms? Really? Why not reveal that the coins are controlled by few individuals in a ponzi scheme? the so-called tech savvy investors are the bottom of the pyramid supporting the whales at the top. most of the coins were bought on credit. why not really write about that?
Roger Miller
Roger Miller Sep 20, 2021 6:11AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
So really no different than fiat currencies, with politicians and central bankers pulling the levers.  They've destroyed just as much wealth as anyone who "controls" bitcoin will.  Buy gold.
milena villa escobar
milena villa escobar Sep 20, 2021 5:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Bye bye Bitcoin and crypto and the millennial fantasy of monetizing their tech savvy ness.  Buy gold and hold.  Now it's just a matter of time
me ish
me ish Sep 20, 2021 5:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
well if you're in the USA, the government will just confiscate your gold - done it once before - can do it again - folk need to get outa the USA, hand back their citizenship and use btc - the US can try all they like to regulate people and assets outside of their country, but they're a failing state and they will fail at that too. The USD is toast - always with the way with a dying empire. The US can't even stop the Taliban or Iran of using other forms of payment for transactions, be they food, arms, uranium or oil.
Nickolay Kolyusheff
Nickolay Kolyusheff Sep 20, 2021 5:55AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Silver is better option. It'll just take 20$Bn to buy entire year's stock.
jason xx
jason xx Sep 20, 2021 5:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They want the tax money it's already going to pay for infrastructure. They need to allow an etf for btc
me ish
me ish Sep 20, 2021 5:54AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
more wealthy people are leaving the US in their droves and handing back their passports - it's the sign of a dying empire. This is not different to the desperation that occurred in the last decades of the Roman Empire
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email