Bitcoin’s Fears Are Regulation has a penchant for flirting with the mainstream. But, as the US president indicates he wants to get serious with crypto, it may be having cold feet.
Bitcoin has a penchant for flirting with the mainstream. But, as the US president indicates he wants to get serious with crypto, it may be having cold feet.
When Joe Biden directed agencies to create studies on the role of cryptocurrencies in future finance last Wednesday, bitcoin surged as much as 9% and ether 8%, as many crypto enthusiasts heralded a possible watershed moment in mainstream adoption.
“The actual significance is that the president of the United States is talking about crypto,” said Jack McDonald, CEO of Standard Custody, a startup that provides institutional investors with digital asset custody solutions.
However, cryptocurrencies are complex.
While bitcoin briefly rose beyond $42,500 in response to the news, it has since given up those gains and is presently trading around $38,000. Similarly, ether has retreated to a price range of $2,500-$2,500.
That seems to be a subdued market response to the White House’s first public remark on cryptocurrency – however, who can fully comprehend bitcoin, which is still licking its wounds from China’s rejection and nursing nagging concerns that it is losing its identity?
Regulation is a two-edged sword.
Some industry observers see hopeful indicators for bitcoin, claiming that the presidential declaration might herald new crypto rules in the United States, attracting considerably more institutional money from pension funds and insurance companies.
“Biden’s executive order might herald the end of crypto as we know it,” Edmund Kulakowski, senior financial crime specialist at London-based regulatory software business Fenergo, warned.
However, this may not be such good news for crypto gamers who flourish in the wild.
“Quant-driven hedge funds using arbitrage and quant strategies often excel in more volatile and unstructured markets,” said Ganesh Iyer, chief marketing and strategy officer at New York-based technology firm IPC.
We’ll find out in time “When and how will this market mature? Until then, hedge funds may take use of ultra-low latency networks to capitalise on volatile, compliance-light, and liquid crypto markets.”
Who exactly is the Sheriff?
There’s also uncertainty about America’s regulatory objectives, with Biden giving federal agencies six months to create instructions on how to proceed.
For one thing, it’s unclear who will be the crypto sheriff, or if crypto should be considered as a security or a commodity.
The Securities and Exchange Commission (SEC), which regulates listed stocks and hence tokens that are considered securities, and the Commodity Futures Trading Commission (CFTC), which regulates commodity and derivatives markets, are both obliged to provide input into the reports.
“Specifics pertaining to the SEC, CFTC, and other financial authorities are minimal,” said Jerald David, head of Arca Labs, the Los Angeles-based digital asset management Arca’s innovation arm.
Shane Rodgers, a former investment banker and the CEO of PDX Currency, a crypto-to-fiat payments app and utility coin, said he was waiting to see how the legislation will take shape, especially in terms of defining the SEC’s role.
“The government can forget innovation in the crypto area in the United States until there is greater visibility,” he continued, “because I, for one, will not be employing any employees or investing huge sums of R&D money in this nation.”
America’s Cryptocurrency Power
Whatever happens, it seems that US action will have a significant influence on the worldwide crypto business.
America, the epicentre of traditional finance, is quickly becoming the epicentre of crypto; according to PwC, 43% of the world’s crypto hedge fund managers are now based there, and the United States is now also the centre for bitcoin mining following China’s crackdown on that part of the industry last year.
Standard Custody’s McDonald characterised Biden’s directive as a “symbolic document.”