Early Investing

Crypto’s Two Biggest Exchanges Get Heat From Regulators

Crypto’s Two Biggest Exchanges Get Heat From Regulators
By Vin Narayanan
Date March 31, 2023

Crypto Market Musings

Bitcoin broke through the $28,000 barrier (and for one brief moment topped $29,000) on Wednesday after spending about a week trading in the $27,000 range. It’s currently trading at $28,460.27.

Most cryptos rallied behind bitcoin’s big Wednesday surge (more than 5%). Ethereum jumped almost 4%. And Polygon was up almost 6%. Ethereum is currently trading around $1,831.30. Polygon is currently trading around $1.11.

Two factors appear to be driving the market:

  1. A lack of liquidity (CoinDesk has a great explainer on why the market is relatively illiquid right now) means small buy or sell orders can trigger big price moves up or down.
  2. A return to money printing to bring stability to the global banking system proves out bitcoin’s raison d’être (reason for existence) — the need for an economic system based on sound money.

While it’s nice to NOT be talking about how low bitcoin could fall, I don’t believe we’re out of the danger zone yet. Between inflation and a potential recession, danger is lurking. 

What Vin Is Thinking About

The crypto markets are in a weird place. Last week, the Securities and Exchange Commission (SEC) informed Coinbase (via a Wells Notice) that it would pursue an enforcement action against it. This week, the Commodity Futures Trading Commission (CFTC) announced it was suing Binance. The two most important crypto exchanges in the world are now facing enforcement actions — and the markets just shrugged it off.

The SEC hasn’t outlined its case against Coinbase. The only thing we know about the SEC action is what Coinbase has told us. And what Coinbase has told us fits the SEC these days when it comes to crypto.

“Today, we are disappointed to share that the SEC gave us a ‘Wells Notice’ regarding an unspecified portion of our listed digital assets, our staking service Coinbase Earn, Coinbase Prime, and Coinbase Wallet after a cursory investigation,” Coinbase wrote in a blog entry.

Now, do I believe Coinbase knows more than it’s letting on? Yes. But the SEC doesn’t deserve the benefit of the doubt. The regulatory agency has provided no regulatory clarity or insight for the crypto industry to follow. The truth is that even if Coinbase wanted to register as an exchange, the SEC doesn’t have a way for it to do that.

Meanwhile the CFTC has been fairly clear in its crypto stance. It views bitcoin and Ethereum as commodities. But it wants exchanges to register with it. And the CFTC lawsuit said Binance failed to register with the agency, pursued and accepted American customers, and had inadequate know-your-customer and anti-money-laundering controls. 

Binance responded to the lawsuit in a blog post by writing, in part, “the CFTC filed an unexpected and disappointing civil complaint, despite our working cooperatively with the CFTC for over two years. Upon an initial review, the complaint appears to contain an incomplete recitation of facts, and we do not agree with the characterization of many of the issues alleged in the complaint.”

In most industries, the two biggest and most important players facing regulatory heat would send people running for the hills. In crypto, not so much.

Bitcoin and the crypto markets have rebounded. And instead of pulling out of the market, investors are focusing their anger on the SEC.

And Finally…

MicroStrategy isn’t backing off its bitcoin strategy. It repaid the remaining principal of its $205 million loan from the now-defunct Silvergate Bank and, over the past five weeks, bought $150 million worth of bitcoin

Top Posts on Early Investing