First Mover Asia: The BitMEX Saga Continues to Leave Fundamental Regulatory Issues Unsettled; Bitcoin Falls

The new reality of higher interest rates and heightened recessionary fears continued to ripple through crypto markets over the weekend.

Bitcoin was recently trading at about $34,200, a more than 2% drop, and its lowest mark since last July. Even then, it was doing better than most major altcoins in the CoinDesk top 20 by market capitalization. 

Ether was changing hands at about $2,550, off roughly 3% over the same period and its lowest point since early March. Terra's luna token tumbled over 8.5% at one point and SOL and CRO were each down about 5%. AXS and TRX shone among the sea of red, rising over 1.5% and 5.5%, respectively.

"BTC has continued to be weighed down by macro pressures and the general market sentiment," Joe DiPasquale, CEO of crypto fund manager BitBull Capital, wrote to CoinDesk. "The FOMC resulted in volatility but the upside move was short-lived."

Crypto's declines dovetailed with equity markets, which closed down last Friday with tech heavy Nasdaq sinking 1.4% a day after tumbling 5% – the latter its worst performance since 2020. 

The S&P 500 and Dow Jones Industrial Average fell in smaller increments but continued their downturn following the U.S. central bank's widely-expected, half-point interest rate hike last Wednesday. 

A day later, the Bank of England (BoE) continued its own more hawkish monetary path, raising rates a quarter of a point to their highest level in 13 years.

It was BoE's fourth straight interest rate increase since December. Central banks in other parts of the world have followed similar strategies to tame inflation that has reached 40-year highs and threatens to rise further amid the fallout from Russia's invasion of Ukraine.

Meanwhile on Friday, the latest U.S. Labor Department jobs report, which showed a better-than-expected gain of 428,000 jobs in April, underscored concerns that a historically tight jobs market would increase wages and accelerate inflation. 

During the first quarter of this year, U.S. employers paid workers 1.4% more on average than during the prior three-month period, according to the report. It was the biggest jump in two decades.

DiPasquale expects bitcoin to decline further, especially as monetary policy continues to contract," but does not see the largest crypto by market cap falling below the $25,000 to $30,000 range, even if a downturn reaches extreme proportions. 

But he also noted that "a bounce in the near term cannot be ruled out" as May's options expiry of approximately $1.3 billion on the Bitcoin futures exchange Deribit approaches.

Arthur Hayes and BitMEX both decided, separately, that they would plead guilty to the charges before them and pay fines to settle their respective cases with the feds, with Hayes and BitMEX’s other co-founders each being ordered to pay a $10 million fine at the end of last week.

This, as we’ve discussed before, is too bad, because the case against them relied on a novel interpretation of the Bank Secrecy Act and a confirmation that the Commodity Futures Trading Commission (CFTC) really has extraterritorial authority. 

This type of litigation is expensive and stressful, and so it's understandable why someone might want to call it quits instead of going through with it.

But now, as Hayes awaits sentencing, we are no further ahead in obtaining regulatory clarity than we were before. Terraform Labs’ case against the U.S. Securities and Exchange Commission is working its way through the legal system, but it will be months if not longer before it’s in front of a judge. 

In the meantime, as Sam Bankman-Fried, the founder of the FTX crypto exchange, pointed out in a recent interview, the “power struggle” between the CFTC and the SEC has resulted in the regulatory environment being stalled.

“We’re not actually in a place with more federal oversight than we were in a year ago,” he told Blockworks, arguing that if the SEC and CFTC could agree on who is responsible for licensing cryptocurrency exchanges it would solve “60% of the problem.”

The CFTC claims that the Commodity Exchange Act of 1934 gives it authority over crypto, which it calls a currency, and thus allows it to regulate the derivatives market for crypto (which is what BitMEX specializes in). At the same time, the SEC’s regulatory mandate comes from testing if a specific cryptocurrency or a product involving the coin constitutes a security.

“The fact remains that digital assets like cryptocurrencies do not fit neatly into the SEC’s regulatory framework,” Bo Howell, a Ohio-based securities lawyer wrote in a post explaining the contested authority over crypto.

If Hayes or BitMEX had decided to fight the feds, they might have actually forced a resolution in the case of which agency takes the lead on regulating the crypto market.

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