Crypto is not immune to regulation, US crackdown is immensely hurtful

important point

• The crackdown by U.S. regulators continues, with Coinbase and Binance being sued last week and a list of tokens declared securities by the SEC.
• Crypto.com Shuts Down Institutional Exchanges, Blaming Declining Demand Due To Recent Events In The Industry
• Retailers will always have access to cryptocurrencies, but institutional capital will decline, which will slow the industry’s trajectory going forward, writes our head of research.

A major regulatory crackdown on the US cryptocurrency industry is in full swing. Some argue that cryptocurrencies are fine for some people. It’s just the latest hurdle for an industry that has always considered itself the underdog, they say. Cryptocurrencies are inherently decentralized and may even move offshore.

For me, I’m not sure. I don’t think the SEC can shut down the entire crypto industry, but I think they can shut down the US crypto industry. And that represents a problem. that is, big problem.

The United States is the world’s largest financial market. Especially focusing on cryptocurrencies, triple A, Estimate The United States alone is home to 45 million cryptocurrency holders, second only to India and China. But the real story here may go beyond retail numbers. The real story may be the organization’s cash.

At some point in 2021, it seemed as if cryptocurrencies were really going mainstream and establishing themselves as their own asset class. The rise is upwards and for the first time in cryptocurrency history, there has been concrete movement from. institution into space. Tesla bought $1.5 billion of Bitcoin for its balance sheet in February 2021. In June of the same year, El Salvador declared Bitcoin legal tender. Three months later, ProShares launched its first futures-based Bitcoin ETF, trading on the New York Stock Exchange under the ticker BITO.

It was no longer a niche internet toy for crypto enthusiasts. This is a financial asset with tangible macro implications that fund managers wanted to get involved with. Demand has exploded. The aforementioned BITO has become the most successful new ETF in history, attracting $1 billion (!) inflows in its first week.

Fast forward to today and the trajectory is completely reversed. Not only have prices and volumes collapsed (BITO lost $1.2 billion in investor money in its first year, the worst debut year in ETF history), but several high-profile scandals that have engulfed the crypto industry have put virtual The currency’s reputation has been damaged. Especially the fall of FTX and Terra.

And now, regulators are tightening their grip. Whether you agree or disagree, the reality is that the laws are tougher on cryptocurrencies. Last week, two major exchanges Coinbase and Binance were sued, and a number of cryptocurrencies were declared securities by the SEC.

The effect is already being felt. Robinhood has announced that customers will no longer be able to trade Solana, Polygon and Cardano. These were three of the tokens formally outlined as securities by the SEC last week.Etro announced It did the same on Monday, suspending trading to U.S. customers of four cryptocurrencies: Polygon, Algorand, Decentraland and Dash.

While these two movements will have a greater impact on retail than on institutions, the former has traditionally been less susceptible to regulation when it comes to cryptocurrencies. The reason so many companies in this space have decided to launch Bitcoin ETFs is that regulations have made it very difficult to allocate funds to Bitcoin. For individuals, it was much easier.

However, with regulation pushing the industry out of the United States, which appears to be the case, this is making the prospects for investing in cryptocurrencies much more challenging, especially for institutions. increase. And beyond the sheer logistics and legality of making it harder to understand, it also paints it in a much less desirable light.

Which fund will allocate client money to sectors where big company CEOs are criticizing the SEC on Twitter? What about a fund looking to buy an industry that faces new lawsuits on a daily basis? It means that the end is coming.

As it becomes harder to imagine US institutions and Wall Street capital entering cryptocurrencies, there is a grim reality that regulatory crackdowns are taking a toll on cryptocurrencies. Last weekend, Crypto.com even announced that it would be shutting down its institutional exchange, citing lack of demand following events in the industry. Its retail platform will continue to be fully operational.

As I said above, I don’t think this is a terminal for cryptocurrencies. Especially for bitcoin (which I personally don’t, if you still see bitcoin in the same category as cryptocurrencies), you’re probably fine. But the orbit that the whole space used to be no longer exists. And continued regulation in the U.S. would cut the sector off from the world’s largest financial market. Retail customers can still buy cryptocurrencies, albeit at a cost. But for educational institutions, it may not be so easy.

Don’t get me wrong. No matter what some people argue about decentralization and other kinds of immunity that the industry is inherently proud of, this is a big problem for cryptocurrencies. The U.S. market is so big that even if cryptocurrencies flourish in other countries, they will never reach the same highs without U.S. involvement.