Markets

The unintended consequences of the FIT21 Cryptocurrency Market Structure Law

Published

8 months ago

24 May, 2024

There is no doubt that the bipartisan passage of the Financial Innovation and Technology for the 21st Century Act (FIT21) from the Chamber represents a monumental development for the US cryptocurrency industry, bringing much-needed regulatory clarity into view. However, despite its good intentions, FIT21 is fundamentally flawed from a market structure perspective and introduces issues that could have far-reaching unintended consequences if not addressed in future Senate negotiations.

Joshua Riezman is deputy general counsel of GSR.

Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

One of the most problematic aspects of the bill is the creation of a bifurcated market for crypto tokens. By distinguishing between “limited digital assets” and “digital goods” in parallel trading markets, the bill sets the stage for a fragmented landscape that is ill-suited to the inherently global and fungible nature of crypto tokens and creates the first of its own kind complications of compliance.

This legislative initiative arises from long-standing debates over the application of US federal securities laws to crypto tokens and the difference between bitcoin, which is considered a non-security, and almost all other tokens. US Securities and Exchange Commission (SEC) guidance on whether a crypto token is a security is generally based on whether the associated blockchain project is “sufficiently decentralized” and therefore is not an investment contract “security” as defined by the Howey test.

FIT21 attempts to codify this impractical test by dividing regulatory oversight of spot cryptocurrency markets between the Commodity Futures Trading Commission (CFTC) and the SEC, based on, among other things, the degree of decentralization.

While the bill appears to helpfully clarify that cryptographic tokens transferred or sold pursuant to an investment contract do not themselves become securities, it unfortunately contradicts itself by still giving the SEC plenary authority over such investment contract assets when sold to investors (or issued to developers). ) for the period of time before a project reaches decentralized Valhalla. Only tokens distributed or earned by end users are initially “digital products” subject to the jurisdiction of the CFTC.

Most confusingly, FIT21 allows simultaneous trading of limited digital assets and digital commodities for the same token in separate and distinct markets during this period (as shown in the graph below). It is likely that many projects would do this Never meet the law’s prescriptive definition of decentralization and thus trade in disconnected markets in the United States indefinitely.

The bill’s proposed bifurcated market for limited and unlimited digital assets ignores fungibility as a key feature of cryptographic tokens. By creating categories of tied and untied goods, the bill disrupts this principle, leading to confusion and market fragmentation. This could compromise liquidity, complicate transactions and risk management mechanisms such as derivatives, reduce the overall utility of crypto tokens, and ultimately stifle innovation in a nascent industry.

Implementing such distinctions would likely require technological changes to crypto tokens to allow buyers to know what type of crypto asset they are receiving so they can meet specific market requirements. Imposing such a technology stamp on restricted digital assets, even if possible, would create an “American-only” cryptocurrency market separate from global digital asset markets, reducing the utility and value of any relevant project.

As shown in the chart above, tokens could transit back and forth between the SEC and CFTC markets in the event that decentralized projects recentralize. The complexity and compliance costs created by such a scheme applied to the many thousands of future crypto tokens are dramatically underestimated and would undermine the credibility and predictability of US financial markets. There are precious few examples of financial products transitioning between SEC and CFTC jurisdiction, and it’s almost always a tire fire (for examplethe 2020 transition of KOSPI 200 futures contracts from CFTC jurisdiction to joint CFTC/SEC jurisdiction).

The bill further underestimates the international nature of crypto token markets. Crypto tokens are global assets that are traded as the same instrument globally. Attempting to restrict certain assets in the United States would likely lead to regulatory arbitrage, where the flow back from international markets would undermine the intent of the bill while eroding the competitiveness of the U.S. cryptocurrency industry.

Developers and investors outside the United States are unlikely to impose similar restrictions on restricted digital assets. Therefore, new projects and investors will be incentivized to move development and investment outside of the United States to avoid these requirements. This would make it extremely difficult to prevent the US digital commodities market from being flooded with non-US tokens that would have been restricted digital assets if they had been “issued” in the US

Finally, ironically, the bill designed to protect US consumers may end up hurting them due to poor market structure. The first CFTC-regulated markets for end users will be full of sellers who typically received tokens for free. This unbalanced market dynamic will most likely lead to low prices and greater volatility than both restricted and international markets, with professional arbitrageurs benefiting at the expense of US retail.

This system will be further manipulated by insiders and professional investors as arbitrageurs capitalize on disjoint pricing and price jump discontinuities caused by the transition between centralized and decentralized designations. At best, US retail markets will be a noisy signal of fundamental value and end users will be the last to receive institutional liquidity.

While FIT21 represents a crucial step in addressing the regulatory challenges posed by crypto tokens, the current proposed market structure may have unintended consequences. To protect customers and ensure the smooth functioning of U.S. digital asset markets, lawmakers must refine the bill to unify spot markets for fungible crypto tokens that would otherwise not be securities under a coherent regulatory framework.

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Related Topics:CFTC FIT21 Opinion Regulation SEC

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Markets

Bitcoin, Ethereum See Red as Markets Crash on Volatility

Published

6 months ago

1 August, 2024

Financial Block Staff

Bitcoin, Ethereum See Red as Markets Crash on Volatility

Bitcoin AND Etherealalong with the rest of the top 10 cryptocurrencies by market cap, appear to be in hibernation on Thursday morning.

At the time of writing, the Bitcoin Price is still below $65,000 and 2.2% lower than it was this time yesterday, according to CoinGecko data. Things are worse for the Ethereum Pricewhich is 3.7% lower than 24 hours ago at $3,185.22. The drop in ETH’s price is identical to that of Lido Staked Ethereum (stETH), a liquid staking token for Ethereum.

In recent days, falling prices have led to the liquidation of derivative contracts worth $225 million, according to Coin glassAnd about half of that, about $100 million, was liquidated in the last 12 hours.

When a trader is liquidated, it means that their position in the market has been forcibly closed by an exchange or brokerage due to a margin call or insufficient collateral. Margin is especially important when it comes to leveraged positions, which allow traders to control a multiple of their deposit, such as opening a $10,000 position with only $1,000 in their account.

Now that Bitcoin has been in the red for three days in a row, there is a chance that the world’s oldest and largest cryptocurrency could sink even further, BRN analyst Valentin Fournier said in a note shared with Decrypt.

“Bitcoin has closed in the red for three days in a row, with one-way trading showing limited resistance from bulls. Ethereum had a slightly positive Monday with strong resistance from bears who have won the last two days,” he wrote. “This momentum could take BTC to the $62,500 resistance or even the $58,000 territories.”

Looking ahead, Fournier said BRN’s strategy will be to “reduce exposure to Bitcoin and Ethereum and find a better entry point after the dip.”

This is despite Federal Reserve Chairman Jerome Powell’s comments yesterday on interest rates being widely regarded as accommodating and indicative of FOMC rate cuts in September.

Singapore-based cryptocurrency trading firm QCP Capital said the rally in stocks, which sent the S&P 500 up 1.6% from Wednesday’s close, was not felt in cryptocurrency markets.

“Cryptocurrencies have seen a broad sell-off overnight and into this morning,” the firm wrote in a trading note. “The market remains poised as traders pay close attention to daily ETH ETF outflows and further supply pressure from Mt Gox and the US government.”

Meanwhile, the other top-ranking coins are showing mixed performance.

Solana (SOL) is down 7.2% since yesterday to $169.13. Things are even worse for its most popular meme coins. In the past 24 hours, the most popular meme coins Dogwifhat (WIF) are down 12% and BONK (BONK) is down 9%, according to CoinGecko data.

Their dog-themed competitor, Ethereum OG Dogecoin (DOGE), the only meme coin in Coingecko’s top 10, is down nearly 4% since yesterday and is currently trading at $0.1205.

XRP (XRP) dropped to $0.608, which is 7% lower than it was at this time yesterday.

Binance’s BNB Coin (BNB) has kept pace with BTC and is currently trading at $571, down 2.4% from yesterday. Toncoin (TON), the native token of The Open Network, is down just 0.4% over the past day.

This leaves the stablecoins USDC (USDC) and Tether (USDT), both of which are stable as they maintain their 1:1 ratio with the US dollar.

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Markets

XRP Market Activity Drops During Ripple-SEC Talks: Price Steady

Published

6 months ago

1 August, 2024

Financial Block Staff

Ripple (XRP) Market Witnesses Calm During SEC-Ripple Meeting

The Securities and Exchange Commission (SEC) will hold another closed-door meeting with Ripple on Thursday, as the market hopes for a possible resolution to the legal battle between the two entities.

However, the cryptocurrency market remains relatively bearish, with the price and trading volume of XRP down in the last 24 hours.

Ripple holders take no risk

At press time, XRP is trading at $0.60. The altcoin’s price has dropped 6% over the past 24 hours. During that time, trading volume was $27 million, down 27%.

The SEC met before with the digital payment company on July 25. While the outcome of that meeting remains unknown, the Sunshine Act Notice for Thursday’s meeting includes one additional topic of discussion from the July 25 closed meeting: the instituting and resolving injunctive relief. That has market participants speculating whether a settlement is imminent.

In an exclusive interview with BeinCrypto, Ryan Lee, Lead Analyst at Bitget Research, noted that:

“This meeting will discuss possible resolution options for the Ripple Lawsuit. The founder of Ripple Labs said that a legal settlement could be announced soon. If an official settlement plan is released, it could positively impact XRP’s price movement.”

However, an assessment of XRP’s price movements on a 4-hour chart shows a spike in bearish bias as the market awaits the outcome of this crucial meeting. Its Moving Average Convergence/Divergence (MACD) indicator readings show that its MACD line (blue) has crossed below its signal line (orange).

XRP 4 Hours Analysis. Source: Trading View

Traders use this indicator to gauge price trends, momentum, and potential buying and selling opportunities in the market. When an asset’s MACD is set this way, it is a bearish signal that suggests selling activity is outweighing buying momentum.

Additionally, the altcoin relative strength index (RSI), at 46.08, is currently below its neutral 50 line and in a downtrend. This indicator measures overbought and oversold market conditions for an asset.

To know more: How to Buy XRP and Everything You Need to Know

xrp rsi XRP 4 Hours Analysis. Source: Trading View

At 43.83 at the time of writing, XRP’s RSI suggests a growing preference among the market participants for tok in distribution.

XRP Price Prediction: Derivatives Traders Exit Market

The XRP derivatives market has also seen a decline in trading activity over the past 24 hours. According to Coinglass, derivatives trading volume has plummeted 18% and open interest has dropped 10% during that period.

Open interest refers to the total number of outstanding derivative contracts, such as options or futurethat have not yet been resolved. When it drops, traders close their positions without opening new ones. This is a bearish signal that reflects a lack of confidence in any potential positive price movement.

According to Lee, the outcome of the meeting with the SEC “would have a significant impact on the price movement of the token.” If the outcome is favorable, the price of the token could rise towards $0.75 in August.

To know more: Ripple (XRP) Price Prediction 2024/2025/2030

XRP Price Prediction XRP 4 Hours Analysis. Source: Trading View

On the other hand, if no favorable resolutions are reached, the price could plummet to $0.50.

Disclaimer

In line with the Trust Project guidelines, this price analysis article is for informational purposes only and should not be considered financial or investment advice. BeInCrypto strives to provide accurate and unbiased reporting, but market conditions are subject to change without notice. Always conduct your own research and consult a professional before making any financial decisions. Please note that our Terms and conditions, Privacy PolicyAND Disclaimers They have been updated.

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Markets

Bitcoin’s Dominance Hits Three-Year High, But Analysts Say Altcoins Are Ready to Rebound

Published

6 months ago

1 August, 2024

Financial Block Staff

Bitcoin's Dominance Hits Three-Year High, But Analysts Say Altcoins Are Ready to Rebound

Bitcoin is now the dominant force in the cryptocurrency market, surpassing 53% of the total cryptocurrency market, a stronger share than it has been in the past three years.

Bitcoin’s market cap now stands at $1.27 trillion, second according to CoinGecko data. In contrast, the total cryptocurrency market cap is $2.43 trillion, with Ethereum occupying 15.9% of the market, worth $389 billion.

Bitcoin’s rise to dominance this year is unusual, as altcoins typically do better than Bitcoin in a bull market. While meme coins made a strong comeback during Bitcoin’s rally to all-time highs earlier this year, the so-called “wealth effect” It has not been appreciated as much by mid-range coins, such as Ethereum and Cardano.

“ETF flows fundamentally alter market dynamics,” he wrote Meltem Demirors, former chief strategy officer at CoinShares, tweeted Wednesday: “BTC gains no longer translate to alts and the longer tail of crypto.”

Bitcoin’s takeover has continued even as the market cap of Tether (USDT) continues to grow, the world’s largest stablecoin and the third-largest cryptocurrency after BTC and ETH. Stablecoins are backed by fiat currencies and are excluded from some measures of Bitcoin dominance due to fundamentally different value models.

The surge continued to pace even after the launch of Ethereum spot ETFs last week, which ironically culminated in a news sell-off event, and net outflows from new investment products since they were launched. This went against the predictions of K33 Search so far, which predicted that ETFs would catalyze ETH’s growth over the next five months.

Despite the poorer performance of the alts, there is reason to believe that they are ready to bounce back very soon.

CryptoQuant CEO Ki Young Ju said Tuesday that whales are “preparing for the next altcoin rally,” as limit buy orders for assets other than BTC and ETH are on the rise.

The executive shared a chart showing how the “cumulative difference between purchase volume and sales volume” has increased in recent months.

“The indicator measures the difference between buy and sell orders over a year,” CryptoQuant told Decrypt. A buy/sell order is a pre-set request to buy or sell a cryptocurrency if it hits a certain price level, which creates resistance and support levels.

“If the trend is up, it means that more people are placing buy orders, showing strong interest in buying,” CryptoQuant said.

By Ryan-Ozawa.

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Markets

XRP and SOL Retrace as BTC Price Drops to 2-Week Lows (Market Watch)

Published

6 months ago

1 August, 2024

Financial Block Staff

Bitcoin Returns Toward $60K, XRP Defy Negative Sentiment (Market Watch)

After Monday’s crash, in which BTC fell by several thousand dollars, the scenario has repeated itself once again in the last 12 hours, with the asset falling to a 2-week low of $63,300.

Alt coins followed suit, with most of the market in the red today. SOL and XRP lead the way from the higher cap alts.

BTC Drops To $63.3K

After a violent Thursday last week, when BTC crashed to $63,400, the asset went on the offensive over the weekend and surged above $69,000 on Saturday, as the community prepared for Donald Trump’s appearance at the 2024 Bitcoin Conference in Nashville.

His speech was followed by more volatility before the cryptocurrency settled around $67,500 on Sunday. Monday started off rather optimistically for the bulls as bitcoin hit a 7-week high of $70,000.

However, he failed to maintain his run and conquer that level decisively. On the contrary, he was rejected bad and dropped to $66,400 by the end of Monday. Tuesday and Wednesday were less eventful as BTC remained still around $66,500.

The last 12 hours or so have brought another crash. Bears have pushed the leading digital asset down hard, which has fallen to a 2-week low of $63,300 (on Bitstamp), leaving over $200 million in liquidations.

Despite the current rebound to $64,500, BTC’s market cap has fallen to $1.270 trillion, but its dominance over alts is recovering and has reached 52.6%.

Bitcoin/Price/Chart 01.08.2024. Source: TradingView

The Alts are back in red

Ripple’s native token has been at the forefront of the market challenge in recent days as pumped up to a multi-month high of over $0.66. However, its run was also interrupted and XPR fell by more than 6% in the last day to $0.6.

The other big loser among the larger-cap alternatives is SOL, which has lost 8% of its value and is now struggling to get below $170.

The rest of this altcoin cohort is also in the red, with ETH, DOGE, BNB, AVAX, ADA, SHIB, and LINK all seeing drops between 2 and 5%.

The total cryptocurrency market cap lost another $70 billion overnight, falling below $2.4 trillion today on CG.

Cryptocurrency Market Overview. Source: QuantifyCrypto SPECIAL OFFER (sponsored)
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