As Crypto Becomes Political, Crypto Asset Prices Consolidate After Rebounding From Last Week’s Lows
Crypto Assets have rebounded from last week’s lows and are presently testing the bottom of the recent trading range. Last week’s sell-off saw Bitcoin break below the crucial $60K level and fall all the way down to around $57K. Since then, Bitcoin has re-claimed the low end of the $72K to $60K trading range, which has been in place since the beginning of March. Bitcoin bulls will want to see this level hold and for price to make an attempt at breaking the top of this range. This would form a bullish deviation that could force sidelined buyers hoping for lower prices to have to chase price action higher up, helping to drive some momentum in bitcoin’s price action.
Figure 1. Bitcoin has managed to bounce off the lows around $60K and appears to be trading within a range.
Other crypto assets have also been undergoing the process of attempting to find a bottom as consolidations, downtrends and trading ranges have been developing. Ether, for example, has been in a downtrend since it peaked in mid-March around $4K and has since consolidated into a tighter trading range near $3K.
Figure 2. Ether has seen a compression in price as it consolidates around $3K - suggesting a big move may be inbound..
These price consolidations are occurring at a very interesting time for crypto and global markets in general. To start, many US risk assets are very close to their all-time highs. The Nasdaq 100, for example, is only 1-2% away from making a new high.
Figure 3. The Nasdaq is still trading close to its yearly and all-time highs.
On the crypto front, there are a number of developments which suggest that crypto may become a relevant issue in the upcoming US election. The Securities and Exchange Commission in the US has not relented on its war path to target and punish both crypto firms and firms that offer crypto services. Just this week, the SEC served RobinHood with a Wells Notice, indicating that there may be an enforcement action coming against the firm. Robinhood’s leadership team expressed disappointment with this development, arguing that the firm had done its best to understand how crypto regulations work.
Robinhood had “come in” to speak with the SEC and had been in contact with the regulator for years and even de-listed a number of crypto tokens that had been accused of being securities in recent SEC enforcement actions. The firm had also undergone, “a 16-month process with the SEC staff trying to register [as] a special purpose broker-dealer. And then we were pretty summarily told in March that that process was over and we would not see any fruits of that effort”, according to a statement made to the US House of Representatives. Robinhood’s echos the same concerns that all crypto firms that have had run-ins with the SEC claim - that the SEC has essentially made it impossible for any firm to handle crypto assets due to the vagueness of the non-existent rules and the SEC’s regulation by enforcement approach.
To make things even more interesting and political, two developments this week suggest that crypto may become a relevant issue in the upcoming US election. First, the House of Representatives in the US voted in favor of a resolution that would oppose the SEC’s latest crypto accounting policy (known as SAB 121), which makes it impractical for regulated entities to custody crypto assets for their customers. The resolution passed with the support of Republicans and 21 Democrats. President Joe Biden, for his part, vowed to veto the resolution if it were to pass through the Senate.
SAB 121 requires that traditional and regulated financial firms that custody crypto assets treat those assets as liabilities on their balance sheets. This would, therefore, force institutions to match these liabilities with assets held on their books. This is not the case for conventional assets like stocks and bonds. For example, one of the largest US custodians, BNY Mellon, has $44 trillion dollars worth of assets under custody but holds nowhere near that many assets on its books. SAB 121 discourages banks from participating in the crypto markets, thereby limiting consumer access to regulated and potentially safer custodial services.
Crypto advocates argue that by vetoing the repeal of SAB 121, the Biden administration may perpetuate a less competitive market, leaving crypto users with fewer choices and potentially less secure options for asset custody. This approach contrasts with global trends of increasing crypto integration into traditional financial institutions in major economic hubs like the UK, Singapore, and Hong Kong. It also makes clear the administration’s anti-crypto policies, showcasing how far they are willing to go with their hostile regulatory approach.
Meanwhile, Donald Trump, during an event for NFT holders of his Trump Trading Cards yesterday, made a number of remarks that were very supportive of crypto. In responding to a question of how the US can keep crypto businesses from fleeing overseas, he stated that, ““[Gary] Gensler is very much against it, the Democrats are very much against it,” Trump said. “But I’m good with it.” Upon hearing that the “Jeo Boden” memecoin has a market capitalization of $240 million, he said, “That's a lot of money for a coin, I don't like that investment."
A poll released this week found that over 20% of voters in swing states like Michigan, Ohio, and Pennsylvania regard crypto policies as a significant issue in the upcoming U.S. elections. Crypto regulation and its influence on voter preferences, especially among crypto-positive voters, is becoming a growing political dimension.
Latest Crypto Developments
In this section, we highlight the latest developments that may be significant in either the price action or the trajectory of the crypto space overall.
FTX Creditors May Recover Over 100% in Bankruptcy Plan
FTX creditors could see an unprecedented recovery rate of 118% following a bankruptcy plan estimate. This optimistic projection highlights a significant potential turnaround in the bankruptcy process, positioning it among the most successful recoveries in financial history, akin to the Lehman Brothers' case.
Legal Battles Loom as Ether ETFs Face SEC Hurdles
The path to U.S. approval for spot ether ETFs may require overcoming legal challenges similar to those faced by Bitcoin ETFs, with ongoing litigation such as Consensys' suit against the SEC possibly influencing outcomes. The SEC's hesitance, driven by concerns over market liquidity and the classification of ether as a security or commodity, continues to impede the approval of spot ether ETFs.
Bitcoin Miners Under Economic Strain
The Bitcoin mining industry is experiencing financial strain as transaction fees and rewards decrease, following the post-halving drop in block rewards. This economic pinch comes despite a brief surge in revenue from heightened transaction fees during the launch of the new token standard, Runes, illustrating the volatility and challenges within the mining sector.
SEC's Wells Process Criticized by Crypto Lawyers
Crypto legal experts are criticizing the SEC for its aggressive use of the Wells process, viewing it as part of a broader "carpet bombing" regulatory strategy against the crypto industry. This criticism points to a perceived misuse of regulatory power, potentially damaging the growth and innovation in the crypto space.
Coinbase's Q1 Earnings Soar to $1.6 Billion
Coinbase has reported a substantial rise in its Q1 earnings, reaching $1.6 billion, driven primarily by a significant increase in transaction revenue, an increase of 72% from the previous quarter. Earnings of $4.04 per share beat the consensus estimate of $1.15 per share.
Market Returns
That's Some Good Content!
Recommended articles, podcasts, and other content from this week:
Odd Lots podcast - Hugh Hendry on the "Terrifying" Yen Move, and Risk of "Mad Max" Deflation
Galaxy Brains podcast - Why Stablecoins Make Sense w/ Austin Campbell
The Breakdown podcast - Grayscale Withdraws ETH ETF
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