The Fintech Files: Crypto funds dumped Ethereum after the Merge – here’s why

The Ethereum Merge might be complete, but it’s not caused investors to pile into the asset as much as some might have hoped.

Ether saw outflows of $2.2m last week, part of a bigger $361m dumping of the asset in the first three quarters, according to CoinShares research.

The token is 60% down for the year – despite its supposedly era-defining software update – to $1,282 on 11 October.

Part of the reason for that is US regulatory chief Gary Gensler. (Remember him?)

Last month, he signalled that the digital currency may now qualify as a security because of the new staking model it employs after the Merge, thus making it fall under the jurisdiction of the Securities and Exchange Commission.

Crypto firms don’t like this one bit. If a token is regulated as a security – like a stock – it becomes far more costly and complex to run because of the strict retail investor protection rules applied by the SEC.

Instead, the industry by and large wants to be regulated by the Commodities and Futures Trading Commission, the derivatives watchdog. 

There, the rules are less stringent, and more focused on making sure companies can use derivatives to hedge against the risks of volatile price swings than on the role of retail investors.

SEC oversight could “potentially destroy” a big 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 remains in demand, he added, but its short-term outlook remains gloomy due to the “SEC threat”.

Rocky markets in general haven’t helped, of course. Almost every asset class has reeled in 2022 from the war in Ukraine and roller coaster energy shocks, as well as soaring inflation and rising interest rates. 

Headlines this week

Binance suffers $100m hack on its blockchain network

How ex-Celsius boss Alex Mashinsky and other execs withdrew $18m in crypto before firm’s bankruptcy filing

Binance co-founder: UK is ‘most stressful’ country for crypto regulation

Coinbase hires Goldman’s Naeem amid derivatives trading push

CBDCs are coming. 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 European Union Commissioner Mairead McGuinness said that a central bank digital currency would “be a companion to the physical euro”.

“The digital euro would provide an alternative, not a replacement to private means of payment,” the EU commissioner for financial stability, financial services and the capital markets union said.

Nine out of 10 central banks are exploring the possibility of issuing a digital form of cash. The European Central Bank is currently in the research phase. But like with other Western central banks, no decision has been made on whether to go through with issuing one.

…while MiCA edges forward

Meanwhile, the bloc came a step closer to regulating crypto, after EU lawmakers voted in favour of the Markets in Crypto Assets Regulation.

MiCA is a comprehensive set of regulations for the digital asset space in Europe – officials voted 28 to 1 in favour of the legislation.

If passed in the next vote, it will mean stricter rules for crypto companies, such as bringing stablecoins such as tether and USD coin under a stricter regime to make sure they can meet redemption requests during mass withdrawals.

Earlier this month, European Banking Authority chair José Manuel Campa wrote in FN about what MiCA might mean for crypto cops and criminals.

Our favourite stories from around the web

Rug pulls in crypto are usually the domain of scammers – constructing hype around their coins then abandoning the project and making off with the cash. But now, US 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 getting themselves into. The Financial Times asks: is there really such a thing as crypto addiction?

An Australian woman who was accused of theft over a $10.5m mistaken crypto refund from has been released on bail, along with her husband – despite allegedly trying to flee the country. The money was allegedly used to buy four houses worth $4m, plus vehicles, art and furniture, reports the Guardian.

The last word

The Financial Conduct Authority thinks Binance is “not capable” of supervision by regulators and poses a “significant risk to consumers”, as per a consumer warning last year.

But Binance’s co founder, He Yi, has another version of events.

She told Financial News the exchange had merely made “communicating mistakes” when seeking a license to operate in Britain, 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 the perspective of crypto regulation – but that Binance was engaging 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

Source link


Latest articles

Related articles

Leave a reply

Please enter your comment!
Please enter your name here