The Fintech Files: Crypto Funds Dumped Ethereum After Merger – Here’s Why
The Ethereum merger may be complete, but it hasn’t caused investors to pile into the asset as much as some might have hoped.
Ether saw outflows of $2.2 million last week, part of a larger $361 million dumping of the asset in the first three quarters, according to CoinShares research.
The token is down 60% for the year – despite the supposedly epoch-defining software update – to $1,282 on October 11th.
Part of the reason for that is US regulatory chief Gary Gensler. (Do you remember him?)
Last month, he signaled that the digital currency could now qualify as a security because of the new staking model it uses after the merger, thus falling under the jurisdiction of the Securities and Exchange Commission.
Crypto firms don’t like this. If a token is regulated as a security – like a stock – it becomes far more expensive and complicated to operate due to the strict rules for the protection of private investors applied by the SEC.
Instead, the industry largely wants to be regulated by the Commodities and Futures Trading Commission, the derivatives watchdog.
There, the rules are less strict, and more focused on ensuring that companies can use derivatives to hedge against the risk of volatile price fluctuations than on the role of retail investors.
SEC oversight could “potentially destroy” a large part of ether’s valuation, said Marc P. Bernegger, co-founder of Zurich-based crypto fund AltAlpha Digital.
He added that some investors are waiting for “regulatory clarity” before allocating funds to ether and other cryptocurrency assets.
Ether is still in demand, he added, but its short-term outlook remains bleak because of the “SEC threat.”
Rocky markets in general haven’t helped, of course. Almost all asset classes have fallen in 2022 from the war in Ukraine and the roller coaster energy shock, in addition to rising inflation and rising interest rates.
Headlines this week
Binance suffers $100 million hack on its blockchain network
How ex-Celsius CEO Alex Mashinsky and other executives withdrew $18 million in crypto before the firm’s bankruptcy filing
Binance co-founder: UK ‘most stressful’ country for crypto regulation
Coinbase hires Goldman’s Naeem amid derivatives trading
CBDCs are coming. The markets should adjust now
Coinbase engineer ‘kicked knife attacker off bike’ in central London stabbing
European CBDCs “will not replace the euro”…
Currency traditionalists breathed a sigh of relief at this year’s Sibos conference in Amsterdam after EU Commissioner Mairead McGuinness said a digital central bank currency would “be a companion to the physical euro”.
“The digital euro will be an alternative, not a replacement for private means of payment,” said the EU Commissioner for Financial Stability, Financial Services and the Capital Markets Union.
Nine out of 10 central banks are investigating the possibility of issuing a digital form of cash. The European Central Bank is currently in the research phase. But as with other Western central banks, no decision has been made on whether they will go through with issuing one.
…while MiCA edges forward
Meanwhile, the bloc moved a step closer to regulating crypto, after EU lawmakers voted in favor of the Markets in Crypto Assets Regulation.
MiCA is a comprehensive set of regulations for the digital resource area in Europe – officials voted 28 to 1 in favor of the law.
If passed in the next vote, it would mean stricter rules for crypto companies, such as bringing stablecoins such as Tether and USD coins under a stricter regime to ensure they can meet redemption requests during mass withdrawals.
Earlier this month, head of the European Banking Authority José Manuel Campa wrote in the UN about what MiCA could mean for crypto police and criminals.
Our favorite stories from around the web
Crypto rug pulls are usually the domain of scammers – they build hype around their coins, abandon the project and make off with the money. But now the American news giant CNN has been accused of doing just that after pulling the plug on its own crypto project, reports Decrypt.
Crypto and gambling have a lot in common – but with crypto, people often have no idea what they’re doing. The Financial Times ask: is there really such a thing as crypto addiction?
An Australian woman accused of theft over a botched $10.5 million crypto refund from Crypto.com has been released on bail, along with her husband – despite allegedly trying to flee the country. The money was reportedly used to buy four houses worth $4 million, plus vehicles, art and furniture, the Guardian reports.
The last word
The Financial Conduct Authority believes Binance is “unable” to oversee regulators and poses a “significant risk to consumers”, as per a consumer warning last year.
But Binance’s co-founder He Yi has a different version of events.
She told Financial news the exchange had only made “miscommunications” when applying for a license to operate in the UK and that it was “not professional” enough in the language it used when applying.
Yi added that the UK was the “most stressful” country from a crypto regulatory perspective – but that Binance engaged the FCA in a fresh charm offensive.
Will it work? Is Yi correct? The FCA declined to comment.
To contact the author of this story with feedback or news, email Alex Daniel
