Even as the cryptocurrency market rebounds from 2022’s bearish turn, regulatory pressure is coming from all sides. The biggest hammer could drop courtesy of the Securities Exchange Commission (SEC) on the two largest exchanges.
Binance and Coinbase are familiar names in the crypto sphere, and charges from the SEC could rain down heavily on two of the biggest exchanges. A recent NPR report noted that both exchanges are in hot water for “failing to register their exchanges with the SEC.”
As the report explained, it’s not merely a legal battle between the SEC and the two crypto exchanges. A third combatant in the form of the Commodity Futures Trading Commission (CFTC) has entered the fray, challenging the SEC’s authority in overseeing the crypto market.
Ultimately, it boils down to defining cryptocurrencies. Do they exist as assets, which fall under the purview of the SEC, or commodities, which fall in the CFTC’s arena?
“A turf war continues, between the SEC and another federal regulator, the Commodity Futures Trading Commission (CFTC), over which agency has the power to oversee these assets and the broader sector,” the report said.
Regardless of who ultimately wrestles regulatory control from the other, it will likely set the tone for how crypto market oversight will develop in the coming years.
“I think these cases will be fundamental to the shape of crypto regulation,” said Timothy Massad, former chairman of the CFTC, in the report.
Of course, the crypto market feels that these calls for registration, regardless of whether they’re securities or commodities, are outside the realm of both, since they’re digital assets that don’t co-exist in the traditional financial markets — at least in the minds of crypto pundits.
Bitcoin Pulls Back
Amid the regulatory squabbling, bitcoin is managing to hold onto its 2023 gains. The leading cryptocurrency is up over 50%, but it has pulled back to the $25,000 level after pushing above $30,000 in April.
One notable feature has been the lack of volatility that hit the crypto market with a thunderous clap in 2022. As such, trading activity has dropped and continued following the collapse of crypto exchange FTX last year.
More regulation could also have a profound effect on the crypto market. Pressure on the two biggest exchanges could sour sentiment, especially in those who were on the fence about crypto investing.
“I think that sentiment will likely continue to be somewhat negative around crypto,” said Stephen Glagola, an analyst at TD Cowen.
Nonetheless, exchange traded funds (ETFs) can offer investors a way to take advantage of the recent pullback. Two to consider are the ProShares Bitcoin Strategy ETF (BITO) and the ProShares Short Bitcoin Strategy ETF (BITI).
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