Coinbase Stands Up for Crypto: Navigating the SEC Lawsuit and Its Implications
Coinbase Stands Up for Crypto: Navigating the SEC Lawsuit and Its Implications
Digital Asset Market: The US Securities and Exchange Commission asked Coinbase to halt trading in all cryptocurrencies besides Bitcoin before filing a lawsuit against them. Coinbase CEO Brian Armstrong said that the SEC wanted Coinbase to delist all tokens other than Bitcoin and explained that if Coinbase had agreed, most of the American crypto businesses would have been operating illegally and the crypto industry in the US would have been over. In addition, the SEC and the Commodity Futures Trading Commission have been jockeying for control over the crypto industry. The SEC's lawsuit against Coinbase identifies 13 mostly lightly traded cryptocurrencies as securities but Ether, the second largest cryptocurrency, did not get included in the case. The SEC's recommendation to Coinbase to delist tokens other than Bitcoin could leave most of the American crypto businesses needing to register with the SEC if they want to continue operating legally.
Separately, a federal judge in New York has split with another judge who ruled that the blockchain token Ripple was not a security when sold on secondary markets, leaving cryptocurrency regulation uncertain. The SEC is still pressing its case against another crypto company, Terraform Labs, and its founder Do Kwon, with Judge Jed Rakoff ruling that the same Howey test - determining an 'investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others' - applied both to institutional and retail investors. The Ripple ruling had initially caused excitement in the crypto industry, but it's apparent that the issue is still far from settled.
Macro Economics: Indications of heightened economic activity are becoming more apparent, as evidenced by the personal consumption price index, which reported a 3% annual increase in June. Following the Federal Reserve Chairman's announcement of a 25bps hike, the market has inferred a potential pause in interest rate hikes at the Sep 20, 2023 meeting. This is coupled with an unexpectedly robust GDP growth in the second quarter. In the coming week, further insights into the labor market will be gleaned from the release of the July jobs report and private payroll survey data. The economy, demonstrating resilience, appears to be gaining momentum entering the third quarter, spurred by rising household incomes and a declining inflation rate. However, it remains to be determined whether this current wave of optimism is well-founded.
Equities: The S&P 500 and Nasdaq Composite fell slightly at the start of August due to a mix of corporate earnings reports and economic data. Merck reported strong Keytruda sales, while Pfizer's results were mixed and Uber and JetBlue both lowered guidance. Investors seemed to be taking a break, as the markets had achieved a series of record highs and the overall corporate earnings season had gone well. Meanwhile, job openings figures fell below expectations and manufacturing data showed continued contraction.
Geopolitical: The Hungarian Foreign Minister, Péter Szijjártó, claimed that the EU believes there will be war in Ukraine for another four years, and Slovakian Foreign Minister Miroslav Wlachovský disputed the claim, pointing the finger of blame at Russia. Hungarian Minister of State Tamás Menczer responded by noting the EU's proposed €20 billion spending plan for arms in the region, while Ukrainian President Vladimir Zelensky and the White House both pushed for an immediate ceasefire and peace. In addition, Ukraine has been targeting Russian intelligence, military, and financial centers with drone strikes, asserting they are bringing the war to Russia's soil - a move which has been suspected of being backed by the US. Though this could be seen as beneficial for Ukraine, Professor Max Abrahms warned that such attacks only reinforce Putin's prior beliefs that NATO is waging a proxy war against Russia.
View from our desk
This week, we observed a surge in stable coin activity, particularly a significant flow from USDT to USD, with settlements requested in US banks. The industry, however, continues to grapple with regulatory uncertainty. Recent months have seen a shift in the landscape, with some settlement banks withdrawing from the digital space, while others have chosen to embrace it.
The regulatory ambiguity, largely instigated by the SEC, is increasingly being addressed in court, but it's not anticipated that these court rulings will provide the much-needed clarity. This ongoing uncertainty, coupled with the dynamic landscape marked by some settlement banks exiting and others entering the digital space, continues to cast a shadow over the industry, influencing its trajectory and potential growth. Despite these challenges, the industry continues to evolve and adapt, with new players entering the market and existing ones refining their strategies to manage potential risks better and capitalize on opportunities. This resilience and adaptability are testing the digital asset market, and the outcomes will likely shape the future of this burgeoning industry.
In contrast to the fluctuating stable coin activity, major cryptocurrencies like BTC and ETH have maintained a consistent, albeit somewhat muted, level of activity. The market appears to be seeking direction, and we anticipate this trend to persist into the next week. Consequently, we expect prices to remain range-bound around current levels.
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The 1Konto Team
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