Written by: Yves, Head of Trading at Wirex
The Bitcoin price (BTC/USD) continued its steep ascent this week, increasing by more than 15%, and quoting near $55,500 at the time of writing. The price exceeded the $50,000 level and the early September high at $52,956 (source: Bitstamp), reaching $56,168 today. The Bitcoin dominance increased by 6% from Friday 1st to Wednesday 6th, most likely favored by reassured institutions.
Indeed, the rally started at the end last week with positive comments from both the Securities and Exchange Commission (SEC) and the Federal Reserve (Fed). Markets bounced first on September 30th, when the Fed’s Chairman, Jerome Powell, stated that he has ‘no intention to ban cryptocurrencies’. Although he mentioned that there could be some regulation on Stablecoins specifically, it felt like the main cryptocurrency was outside the Fed’s scope. The SEC Chair, Gary Gensler, also supported that the US won’t ban cryptocurrencies like China did, although he clarified this week that such a ban would be ‘up to congress’.
Given his experience in cryptocurrencies and his fascination for the field, Gary Gensler has always been keen on expanding the SEC’s official regulatory scope to the sector. He’s already taken serious steps to regulate it, and he claimed several times that the SEC has the authority to do so, even though cryptocurrencies have yet to be legally categorized as securities. This categorization is not straightforward. The SEC Chair explained during the House Financial Services Committee Oversight Hearing that there are cryptocurrencies that could be considered as securities, and others as currencies or commodities. But he contended that:
‘If you’re raising money from somebody else, and the investing public has a reasonable anticipation of profits based on the efforts of others, that fits within the securities law.’
The asset class categorization is more complex than it sounds. Representative Warren Davidson reminded us (time: 2:40:00 of the hearing) of one of Gary Gensler’s articles written three years ago on cryptocurrency regulation. The article points out that with the current regulation, Ether would have transitioned from a security to a commodity status: ‘Ether was sold by the Ethereum foundation before the network was functional (…) but it developed into a (…) commodity once the network became adequately decentralized.
Can a cryptocurrency transition from a security, sold in an Initial Coin Offering (ICO), to a commodity? If so, given the complexity of the tokenomics involved in most cryptocurrencies, should they be regulated by the SEC, the CFTC, both, or potentially a new regulatory body?
Gary Gensler tried to convince lawmakers that the SEC should be the one to regulate cryptocurrencies, by presenting a pessimistic view over their ‘long-term viability’, and the consequent need to protect consumers from potential fallout. Regarding stablecoins in particular, he mentioned that the ‘125 billion dollars’ of stablecoins are like the ‘poker chips of a casino’. Combined with the DeFi leverage potential, they represent a ‘systemic wide risk’.
During the SEC Chair hearing, the number of representatives who appeared informed about cryptocurrencies, and keen to preserve the benefits of the crypto-economy for the US economy, could only reassure investing institutions. That is despite the dozen ETF applications that are still on standby at the SEC.
The US appetite for new technologies is taking over the public and private sector. This week, the city of Miami called upon its residents to start mining the Miamicoin (MIA). The token is meant to fund the city’s projects as 30% of mining profit is reserved for the city. $10.5m have already been raised, and the city is targeting $60m. US cities are competing to attract crypto companies (Austin, New York and Cheyenne). Austin and New York are also working on their own ‘city coins’:
Cryptocurrency adoption is getting a new boost from public authorities, and the classic adoption indicators are booming. The capacity of the Bitcoin Lightning Network that is used to facilitate micropayments, is now above 3,000 BTCs. It is slowly turning Bitcoin into an exchange currency.
Lightning Network Capacity in USD (blue) and BTC (red) - source: lookintobitcoin
From a market perspective, the rally doesn’t have the volumes observed in May-June this year. It is not a panic movement fuelled by the derivatives market, or amplified by the liquidation of short future contracts. The Aggregated Open interest of Bitcoin Futures is growing, but it is still below the early September levels, and 33% below the peak level of April. The demand is steadily coming from institutions: cryptocurrency funds and investment products, especially the Bitcoin-related ones, recorded inflows every week for the past seven weeks according to Reuters. And the latest encouraging regulatory developments helped bulls push the Bitcoin price closer to its highest levels.