More Regulatory Concerns: Bitcoin Prices Dip Again

Written By: Isha Goel | August 5 2021

After a promising few days for the crypto market, Bitcoin pulled back once again as regulatory concerns took flight after an announcement claiming that a ‘lot of hype [is] masquerading as reality in the crypto field.’

Why the Bullish Trend?

What Bitcoin experienced last week was a contango: a bullish arbitrage that occurs when the Bitcoin futures price is higher than the spot price. Arcan Research wrote that ‘Last week’s short squeeze led a large contango to open in the futures market, but as bitcoin failed to break out from its range the contango has declined in recent days.’ Bitcoin’s contango had been narrowing since April as the bullish sentiment waned. Initially, ‘The CME contango remains substantially below the unregulated exchanges, suggesting that the institutional investors remain more cautious than the crypto native traders,’ but the growing contango could likely also suggest that these investors may have accumulated many leveraged long positions that could become problematics if Bitcoin fails to find support about $37,000. Nonetheless, this short squeeze resulted in the prices barely breaking the $40,000 resistance before coming back down as a result of the regulatory concerns.

Credit for Image: Coindesk

Governmental Regulation is Forthcoming

At this week’s Aspen Security Forum, Securities and Exchange Commission’s Chairman Gary Gensler addressed his concerns about digital assets and cryptocurrency needing more regulation. While many believe that crypto credit cards could provide an ample solution between crypto and fiat currency, Gensler has been dismissive of this solution because he believes that ‘no single crypto asset, though, broadly fulfills all the functions of money.’ His biggest concern right now is investor protection to avoid more people being harmed in the future. Gensler stated during the forum that ‘Right now, we just don’t have enough investor protection in crypto. Frankly, at this time, it’s more like the Wild West. This asset class is rife with fraud, scams, and abuse in certain applications. There’s a great deal of hype and spin about how crypto assets work. In many cases, investors aren’t able to get rigorous, balanced, and complete information.’ 

He even foreshadowed the notion that more enforcement actions may be forthcoming as there is a chance that many tokens are unregistered securities. There are many crypto exchanges that operate beyond the borders of the United States and ‘while many overseas platforms state they don’t allow U.S. investors, there are allegations that some unregulated foreign exchanges facilitate trading by U.S. traders who are using virtual private networks or VPNs.’ Given this situation, these platforms should have to register with the Commission under U.S. law. Stablecoins were another point of concern when Gensler claimed that ‘stablecoins also may be securities and investment companies. To the extent they are, we will apply the full investor protections of the Investment Company Act and the other federal securities laws to these products.’ These stablecoins provide a path for people to avoid tax compliance while flaunting anti-money laundering rules and ultimately sidestep public policy goals. 

Maybe Just Not Yet

Gensler believes that crypto and its exchanges need Congressional attention alongside DeFi platforms. In explaining his action plan, he claimed that ‘if this field is going to continue, or reach any of its potential to be a catalyst for change, we better bring it into public policy frameworks.’ It is clear that Gensler is set on introducing regulatory clarity to the U.S. crypto market but these measures may be on the backburner for a while. In a time with the more pressing ‘environmental, social and corporate governance and meme stocks issues,’ some market commentators say that a Bitcoin ETF in 2021 is unlikely. 

Work Cited

Alois, JD. “New Sheriff in Town: Sec Chair Gensler Warn’s Crypto Industry That More Regulations Are Needed.” Crowdfund Insider, 3 Aug. 2021, www.crowdfundinsider.com/2021/08/178677-new-sheriff-in-town-sec-chair-genslers-warns-crypto-industry-that-more-regulations-are-needed/.

Avan-Nomayo, Osato. “SEC Chair Wants Robust Crypto Regulatory Regime for the US.” Cointelegraph, Cointelegraph, 3 Aug. 2021, cointelegraph.com/news/sec-chair-wants-robust-crypto-regulatory-regime-for-the-us

Crawley, Jamie. “SEC Boss Gensler EYEING Robust Regulation of Crypto MARKET: REPORT.” CoinDesk, CoinDesk, 3 Aug. 2021, www.coindesk.com/sec-boss-gensler-eyeing-robust-regulation-of-crypto-market-report.

Dantes, Damanick, and Frances Yue. “Bitcoin in Pullback Mode as Regulatory Concerns Rise.” CoinDesk, CoinDesk, 3 Aug. 2021, www.coindesk.com/market-wrap-bitcoin-pullback-mode-regulatory-concerns.

Mejdrich, Kellie. “Crypto ‘Wild West’ Requires New LAWS, Sec Chair Says.” POLITICO, POLITICO, 3 Aug. 2021, www.politico.com/news/2021/08/03/bitcoin-cryptocurrency-regulation-sec-502281.