The SEC is tightening the noose on cryptocurrencies amid an all-out regulatory crackdown.
After a month of January marked by the bull rallyit seems that the determining factor of the cryptocurrencies in February will be regulations. In recent days, the Securities and Exchange Commission (DRYThe United States Securities Commission (SEC) issued a press release. has tightened its grip on companies in the blockchain sector. and turned them into one of its priorities for 2023. To the sanction imposed on Kraken for providing “staking services”.followed a lawsuit against Paxos Trust, which must stop issuing the Binance USD stablecoin. next week. This latest decision by the regulator has raised alarm bells in the market. begins to feel the noose tightening again, as he thought he had said goodbye to the bear market..
“Stablecoins play a vital role in cryptocurrency trading and their products potentially compete with the fiat banking system. Falling stablecoin market capitalization implies falling cryptocurrency liquidity and leverage.“explained Morgan Stanley. The New York firm points out that the availability of this type of token, whose Tether (USDT), USD Coin (USDC) and Binance USD (BUSD).) are the largest, representing a “simple indicator of the institutional demand for leverage, which influences prices”..
According to these experts, During the bull market of 2021, the price of bitcoin (BTC) drove the growth of the market capitalization of “stablecoins”.while During the 2022 bear market, the opposite was true..
“Rising market prices prompted traders to take on more leverage, in the form of borrowing ‘stablecoins’, which were then used to buy more cryptocurrencies. The fall in market prices was catalyzed by a reduction in cryptocurrency liquidity (quantitative tightening, QT) caused by traders closing long cryptocurrency positions, followed by redemptions of the stablecoins received,” they explain. .
For the most recent cycle, they note, they checked how. investors redeemed USDT at a “record pace” in June 2022.which has “contributed to the bitcoin price crash and what we call the crypto equivalent of quantitative tightening.” “Considering USDT alone was not enough, as we observed that during the bear market, changes in USDC market capitalization preceded bitcoin price changes by approximately 2 months,” note they, speaking of the liquidity of the system.
This relationship, they add, lasted until September 2022, two months before the collapse of FTXafter which the price of bitcoin remained strong, despite the drop in USDC liquidity”. “What we didn’t realize at the time was that the breakdown in the relationship was due to another stablecoin becoming important to the ecosystem. Changes in the market capitalization of BUSD plus USDC followed the price of bitcoin from September 2022 to January 2023, when the loose correlation broke again as bitcoin traded higher out of the range,” notes the New York cabinet.
“For short-term traders, the larger question is whether bitcoin will stay above $20,000. or if there will be another down leg in the bear market.. We believe the recent rally is largely due to short hedging,” Morgan Stanley said, while noting that the market is “speculatively long” in ethereum (ETH) due to its upcoming upgrade.
THE “STABLECOINS”, IN THE SPOTLIGHT OF THE SEC
Whatever turn the next few weeks take, it is clear that the SEC has set its sights on stablecoins.. The $30 million fine that Gary Gensler’s agency imposed on Kraken for offering staking services clearly goes in that direction.
The website “staking”. is a process where investors block or “stake” their crypto “tokens” with a blockchain validator. for the purpose of being rewarded with new “tokens” when their staked “tokens” are part of the data validation process. for the blockchain based on the proof of stake like Ethereum. When investors provide “tokens” to gambling service providers, they lose control of those tokens and take on the risks associated with those platforms, with very little protection.
In this regard, it is believed that 16 million ETH “tokens” could hit the market once the Shanghai upgrade is complete. next March, which could lead to strong selling pressure as well as a picketing rally.
With regard to Paxos, various reports indicate that the US regulator considers that the Binance USD token could be considered a security.a question for which has been embroiled in a dispute with Ripple (XRP) for months.. The SEC defines a security as a financial asset that can be sold or traded on a financial market.such as bonds, stocks, ETFs or others. However, the rapid adoption of blockchain technology, cryptocurrencies, and NFTs has given rise to… many legal gray areas when it comes to securities regulation..
Afterwards, how does the SEC determine what a security is? Through the Howey testwhich is used to determine if an investment contract exists and if a security is sold. According to this test, an investment contract exists if there is an investment of money; this is done in a joint ventureThe investment is made in the hope of profitand this profit is achieved through the efforts of others.
In this regard, blockchain expert and professor Aaron Lane points out to “Cointelegraph” that, “from a broader perspective, it could be argued that the opportunities for arbitrage, hedging and betting allow for the expectation of profits” in “stablecoins”..
The regulator, for its part, may have been slow to act, but, through its own chairman, it made its position clear nearly two years ago: “Make no mistake: it doesn’t matter whether it is an equity token, a stable-value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities. These platforms, whether in the decentralized or centralized financial space, are implicated by securities laws and must work within our securities regime. »