What happened this week around blockchain and cryptocurrencies? The most relevant local and international events as well as appealing background reports in a pointed and compact weekly review.
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The US regulatory authorities have had the cryptocurrency industry in their sights for several weeks. While the Securities and Exchange Commission (SEC) has initiated legal proceedings against leading industry players such as Coinbase, Kraken, and Binance, the Fed, the Office of the Comptroller of the Currency (OCC), and the Federal Deposit Insurance Corporation (FDIC) are warning resident banks against doing business with crypto firms. The law firm Cooper & Kirk sees this as a coordinated attack on the crypto industry and is calling for action from the US Congress to hold the regulatory authorities accountable. This action is comparable to the FDIC’s “Operation Choke Point” in 2013, which targeted industries for growth hindrance through unconstitutional backroom deals.
Law firm Cooper & Kirk describes how various U.S. agencies are attacking the crypto industry via “Operation Choke Point 2.0.”
In the US, different regulators share responsibility for the financial sector. While the SEC oversees the trading of securities, the Commodity Futures Trading Commission (CFTC) is responsible for commodity trading. However, since there is no classification for digital assets, the two agencies have been fighting for control of the sector for some time. This is reflected in the CFTC’s lawsuit against the world’s leading cryptocurrency exchange, Binance. According to the agency, some of the cryptocurrencies traded on Binance, such as Bitcoin, Ether, and USDT, should be classified as commodities, making the CFTC responsible for violations of trading laws. The cryptocurrency exchange allegedly failed to implement appropriate know-your-customer (KYC) and anti-money laundering (AML) procedures, leading to its use for illegal activities such as money laundering and terrorist financing.
The CFTC is another U.S. agency joining the crypto crackdown, filing a lawsuit against Binance, the largest trading exchange.
Liquidity in cryptocurrency markets refers to the ability to buy or sell a cryptocurrency quickly and at a stable price without significantly affecting the market price. Deep liquidity is important because it makes it easier for investors to enter and exit positions, increasing market efficiency and reducing the risk of significant price fluctuations. It also facilitates institutions trading large amounts of cryptocurrencies without significant price fluctuations. Normally, market makers are responsible for maintaining this liquidity. However, since the implosion of the FTX cryptocurrency exchange and its trading firm Alameda Research, there has been a steady decline in liquidity. Additionally, fiat transactions have become more difficult since the closure of the Silvergate and Signature infrastructure solutions. A detailed market analysis by data provider Kaiko provides further insight into this.
The turmoil surrounding crypto-friendly banks in the U.S. is starting to be reflected in the liquidity of the crypto markets.
Due to the drastic tightening of the regulatory landscape for crypto firms in the US, some market participants are looking for a safe haven in the EU. The Markets in Crypto Assets (MiCA) legislation, which will be voted on in April, introduces a comprehensive legal framework for the European single market for the first time. However, it is not a completely crypto-friendly legislative proposal. The EU Parliament has added three amendments to the MiCA framework that limit anonymous crypto transfers to 1,000 euros. Each member state must also establish a financial investigation agency to combat money laundering and terrorism financing specifically targeting crypto service providers. Customers and their counterparties must also undergo comprehensive KYC.
The EU is looking to push through three new bills that would restrict crypto users in their transactions, supporting the MiCA bill.
Additionally: The US government has seized thousands of Bitcoins over the years as part of various darknet investigations. As the blockchain serves as a public ledger allowing for transparent analysis, these Bitcoin holdings can be clearly quantified. The 21Shares research team has identified various wallets belonging to the US government, which collectively hold over 215,000 Bitcoins (almost 6 billion USD as of today). This makes the federal government one of the largest Bitcoin holders ever. Interestingly, one of these wallets has begun the liquidation process through Coinbase this month, with approximately 275 million USD worth of Bitcoin sold. According to recent reports, another 1.1 billion USD worth of Bitcoin is expected to be sold on the market later this year.
The US government is one of the largest holders of Bitcoin and is now in posess of over 215,000 BTC which have been aquired since 2020.
