There’s no need for a preamble, let’s just cut to the chase and say it: the crypto market stinks right now.
The market has become a shell of its former self after crashing more than 80 percent from its January peak. Bitcoin has dropped like a rock and breached the $6,000 unofficial floor, and nobody seems sure if it has a floor anymore.
A lot of investors have been badly burnt, and can probably relate with Charlie Munger’s sentiments that bitcoin and crypto are little more than worthless artificial gold.
Maybe a reversion to pragmatism was inevitable after the euphoric run of late 2017, though few punters predicted the bloodbath we are witnessing.
But, maybe there’s a method to the madness…
Bitcoin 1-year price action
(Click to enlarge)
The latest fallout seems to have largely been triggered by increased regulatory pressures as the SEC, CFTC and DoJ increasingly clamp down on the feisty industry.
A lot of crypto investors have been eagerly waiting for the SEC to approve at least a few proposed bitcoin ETFs in the belief that it would help open up the industry. But so far, the SEC does not seem willing to play after rejecting a multitude of proposed ETFs in August. In fact, it appears that the trade watchdog is much more interested in policing the space because:
“…in particular the requirement that a national securities exchange’s rules be designed to prevent fraudulent and manipulative acts and practices.” Related: SEC Crackdown On ICOs Leads To New Lawsuits
A couple of days ago, the SEC demonstrated that it can flex its considerable muscle in cryptoland, too.
For the first time ever, the SEC slapped fines on ICO startups for breaching some of its recently enacted crypto regulations. The securities regulator contended that CarrierEQ Inc., also known as Airfox, and Paragon Coin Inc., failed to register their ICOs as securities, despite the fact that neither qualified for registration exemptions.
The two startups had managed to raise $15 million and $12 million, respectively, through ICOs in 2017. The young companies were forced to settle with the SEC using a raft of hefty remediations including registering their tokens as ICOs, paying $250,000 apiece in penalties, refunding investors and agreeing to periodically file SEC reports.
And that might have been a mere preview of what the regulatory authorities might soon do.
Hundreds of ICOs are reportedly being investigated by the SEC in its biggest crackdown on the industry, so far.
Further, The U.S. Justice of Department says that it’s investigating long-running allegations that the huge bitcoin rally of late 2017 that precipitated this year’s spectacular crash was the result of price manipulation. Specifically, the SEC is examining whether a dollar-backed cryptocurrency known as tether was used to artificially prop up bitcoin prices, as per CNBC.
The CFTC has already subpoenaed tether and Bitfinex executives over allegations of spoofing (i.e. manipulating the market by placing fake orders then pulling them before they are filled).
A paper published in June titled 'Is Bitcoin Really Un-Tethered? provided compelling evidence that bitcoin prices had indeed been rigged in what the media christened “the mother of all crypto scams”.
Related: What’s Behind China’s Tightening Grip On Global Gold Markets?
The study by University of Texas finance professor John Griffin examined millions of bitcoin transactions before arriving at the conclusion that tether was used to systematically manipulate the price of bitcoin and other cryptocurrencies.
Regulatory Pressure Spooking Market
Perhaps another reason for the latest capitulation is the recent messy Bitcoin Cash fork. However, the crypto market has successfully weathered forks in the past without too much fuss--not to mention that Bitcoin Cash has always been dodgy and dysfunctional.
In an earlier article, we had argued that regulatory pressures were spooking the market. That seems to be the best reason that explains why the markets are acting so skittishly.
By Alex Kimani for Safehaven.com
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