It’s been nearly 1 year since the implosion of Terra Luna and its stablecoin, UST lost over $45 billion dollars in value in just a few days. The ripple effects of this event have been catastrophic to the entire crypto ecosystem. Lending protocols like Celsius, BlockFi and Voyager Digital were actively lending crypto or making loans to Three Arrows Capital, who in turn was heavily invested in Terra Luna & UST. All of these companies and several others were forced into bankruptcy due to massive financial losses. This led to the exposure of the shady business practices of the FTX exchange and Sam Bankman Fried. These collective events cast a dark shadow over the rapidly growing crypto industry and plunged it into what many are calling the crypto “Ice Age”. These events have spawned a slew of political leaders using these events as a political platform to gain airtime and publicity. Case in point is Rep. Elizabeth Warren’s recent declaration that she is building an “Anti-Crypto Army”. To make matters worse, regulatory agencies like the CFTC and SEC are handing out Wells notices and lawsuits faster than Elon Musk issues tweets! Since 2021 when Gary Gensler took over as chair of the SEC, there have been 55 enforcement actions against digital asset and crypto firms. The Securities and Exchange Commission has been aggressive in their attacks on the industry, stating that they are willing to help crypto firms, yet when these firms reach out for assistance, the SEC issues a lawsuit. Industry leaders like Coinbase CEO Brian Armstrong and Ripple CEO Brad Garlinghouse have both stood up and claimed foul play on the part of the SEC. After all, how can you approve Coinbase to be a publicly traded company on US exchanges and then claim that their business activities are illegal?
All of this would lead one to believe that crypto is done. That the hype and excitement have evaporated and it’s time to move on. Yet as the proverb goes, It’s always darkest before the dawn.
While some are staunchly against anything to do with cryptocurrency and digital assets, strong advocates have recently stood up in congress. Representatives Cynthia Lummis, Patrick McHenry, Tom Emmer, and several others have all been very vocal about the need for digital assets and consumer choice. While regulators continue to push crypto out of the US, many argue that it would be pushing out innovation, jobs and intellectual property which could give America a significant competitive advantage in the global economy.
A watershed moment happened this past Tuesday as SEC Chairman Gary Gensler testified in front of the House Financial Services Committee. It began with a grilling by Rep. McHenry who clearly had had enough of the SEC inaction on creating clear rules for the crypto industry. Over and over McHenry asked “Is Ethereum a security or a commodity?”. Gensler dodged the question, simply providing evasive generic responses. Its hard to believe that an individual who taught cryptocurrency and digital assets at MIT and has been chairman of the SEC for over 2 years still cannot definitively say what is a security. After all that IS the job of the SEC. This was followed up by Rep. Emmer, who overtly displayed hostility and frustration at the SECs attacks on crypto, and its inability to create any clear rules that could be followed. At one point, Gensler could be seen shaking as he was answering his questions. The crescendo came from Rep. Warren Davidson who produced a list of abuses committed by SEC Chair Gensler and ultimately announced that he would be introducing legislation that remove Gensler as Chairman of the SEC.
This begs the question - what’s next? It’s clear that there is an anti-crypto push by the SEC. Would the removal of Gensler change that?
Despite all the negativity, most of the crypto industry has stabilized over the past few months. Bitcoin, which fell nearly 80% off its highs in 2021, has bottomed out and a new uptrend has been born, rallying almost 100% off the 2022 lows.
As traders & investors, the mantra “the trend is your friend until the bend at the end” is solid advice. Go with the market and don’t fight it. For now, it appears that the trend is up for Bitcoin, despite all the negativity surrounding the industry. If clear rules are established and regulatory guardrails are put in place, this may usher in a whole new wave of buyers and market adoption. While we are not out of the woods yet, it appears that the winds of change are starting to blow crypto’s way!
On the date of publication, Merlin Rothfeld had a position in: ^ETHUSD , ^BTCUSD . All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
