Hello and welcome to this week's edition of Overbit Weekly Round; as we approach the fourth quarter of 2021, the market has changed considerably since this time last year, with one of the most notable changes being worldwide authorities' interest in cryptocurrency. As we witnessed this week, Coinbase, the largest crypto exchange in the United States, was under severe scrutiny from the Securities and Exchange Commission.
On Tuesday, Coinbase's founder and CEO, Brian Armstrong, tweeted about the SEC's investigation of the company. Following this relief, Coinbase shares dropped sharply on Wednesday after the SEC warned that it would sue the crypto exchange company if it went ahead with a plan to allow users to earn interest by lending crypto assets.
Aside from the setback to Coinbase's expansion plans, the SEC's action marks a new era in its enforcement actions. The agency is now examining whether some of the crypto industry's fastest-growing segments are legal at all. The SEC and other regulators appear particularly concerned about crypto firms offering high-interest rates for users to lend out their assets, a function that banks have traditionally provided.
Webull CEO Anthony Denier, whose brokerage offers crypto trading, stated, "The SEC has been flirting with crypto regulations for some time, but today's news of Coinbase receiving a Wells Notice from the SEC feels very much like the first salvo of a long and drawn-out conflict that may engulf the whole space,".
Following the Coinbase news, BTIG analyst Mark Palmer wrote in a note that the SEC appears to be creating "regulation by litigation," a problematic practice for the industry. If the SEC handles cryptocurrencies case-by-case basis, it may make it more challenging to launch products whose legality is unknown.
Hester Peirce and Elad Roisman, two of the SEC's five commissioners, have warned that this method is "not the greatest way to move forward." People can analyse the circumstances of token sales that are the subject of enforcement proceedings and draw lessons from specific examples; but, applying those lessons to the facts of a completely new token offering does not always yield apparent answers.
Crypto companies have previously worked nimbly with regulators, but this latest move could spell trouble for the industry. Although no single regulator oversees cryptocurrency, the agency that governs it, the Commodity Futures Trading Commission (CFTC), has been arguably more accommodating than the SEC. This lack of clarity has worried some investors, which leads us to our next story of the week.
Closing out this week's Overbit Weekly Round Up, we take a look at some grim warnings coming out of the Kremlin on cryptocurrency.
According to Kremlin spokesman Dmitry Peskov, equating crypto with monetary instruments "will bring nothing but harm", going on to say that "It is certain that Russia is not ready for such steps."
As El Salvador starts as the world's first country with bitcoin as legal tender, it's interesting to hear as Russia brings almost the exact opposite perspective. For a country to recognise cryptocurrencies as actual money would only hurt the economy, according to Peskov.
"So far, there is not the slightest reason to [recognise cryptocurrencies]," Peskov told reporters this week. The spokesman seemed to be hinting at El Salvador's adoption strategy, adding that this harm would happen in the context of "full recognition [of cryptocurrency] as a means of payment".
As we have said for months, the battle between (and for) cryptocurrencies and governments will continue to be a defining theme in the near and distant future. The industry continues to approach a breaking point, and it seems clear that certain governments will pick sides.
Earlier in August, the government of Cuba said that the country's central bank would set rules in place to recognise and regulate cryptocurrency payments. In recent days, Ukraine as well has made moves to regulate bitcoin as legal tender, just as El Salvador has. Both of these certainly contrast with this recent statement from the Kremlin's spokesperson and actions from the U.S. government like in the above story.
We'll continue to keep you updated on the latest happenings between governments and cryptocurrencies, as this stands to be the most exciting and essential theme for the industry in 2021 and beyond.
Thanks as always for reading Overbit Weekly Round Up. Take care until next time!