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Bitcoin traded lower on Friday, ending the week at around $ 39,000. The 2% plunge in the past 24 hours could be due to some profit taking – after a recent 35% increase.
The news from Europe has been both positive and troubling for the cryptocurrency.
And Congress could get closer to regulating the crypto industry.
A bill tabled in the House of Representatives this week would create legal definitions for digital assets, new reporting requirements, empower securities regulators to oversee the market, and clarify that cryptocurrencies and stablecoins are not “legal tender”.
The bill would also authorize the Federal Reserve to issue a digital version of the dollar – a big step for a central bank digital currency that is a priority for some lawmakers and policymakers. China started issuing a digital version of its currency last year and other central banks are on the way.
“Digital assets and blockchain technology show promise, and it is clear that assets like Bitcoin and Ether will remain,” said Rep. Don Beyer (D-Virginia), sponsor of the bill, in a statement. “Unfortunately, the current market structure and regulatory framework for digital assets is ambiguous and dangerous for investors and consumers.”
The market reaction to this can be mixed. While persistent regulation could have a deterrent effect, it could also help legitimize crypto as a mainstream asset class. This, in turn, could create a broader investor base among the huge pools of institutional assets managed by pension funds, foundations, and other major investors.
That seems to be going on in Germany now. According to a report by Bloomberg, the country will allow institutional funds to own up to 20% of their assets in Bitcoin and other crypto products.
The funds, including insurance and annuity portfolios, manage assets worth EUR 1.8 trillion, or approximately $ 2.1 trillion. Although they are generally conservatively run, they may be eager to crack Bitcoin or other cryptocurrencies. Even with 5% of their wealth, it would be more than $ 100 billion in crypto purchases.
At the same time, the world’s largest crypto exchange Binance is facing new regulatory pressure and is pulling its futures products out of some European markets.
Binance said on Friday that it will “wind down” futures and derivatives offers in Germany, Italy and the Netherlands. Traders in these countries cannot open new futures or derivatives accounts and have 90 days to close their open positions, Binance said.
According to a report in the Wall Street Journal, US investors are also trading crypto derivatives on foreign exchanges, thereby circumventing US regulatory requirements.
Binance leads all exchanges in open interest futures volume, according to Fundstrat, a crypto research company. “This is another step the company has taken to work with local authorities after the company reacted against each other over its general ambivalence about financial regulation around the world,” Fundstrat said in a press release.
Binance faces other problems in Europe and Asia. Italian regulators recently warned the exchange against providing unauthorized investment services. The exchange is also facing a class action lawsuit in Italy related to futures trading.
In an email to Barron’s, the company said that “Binance.com does not operate out of Italy. This has no direct impact on the services provided on Binance.com. “
Malaysia is also going tough: authorities on Friday ordered Binance to shut down its website and mobile app, accusing the company of “illegally operating a digital asset exchange”. Malaysia previously reprimanded Binance, but it now appears to be closing the door to the exchange’s activities.
“Binance.com does not operate out of Malaysia,” the company said, adding, “We take our compliance obligations very seriously. We are actively keeping up to date with changing guidelines, rules and laws in this new space. “
Meanwhile, investor interest in crypto only seems to be accelerating. According to a new report from crypto.com, the number of global crypto users reached 221 million in June and has doubled in the past four months. While bitcoin drove much of market growth in January and February, “the introduction of altcoins in May resulted in a massive surge in crypto users,” the report said.
That may be great for crypto demand, but it’s another reason for the regulatory force to step in.
Write to Daren Fonda at daren.fonda@barrons.com
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