The crypto market has been in a downward spiral this week, losing more than 3.5% of its value amid escalating geopolitical tensions, inflation fears and regulatory hurdles. Some of the biggest players in the crypto space, such as Binance, FTX and Coinbase, have faced scrutiny from authorities in the UK, the US and other jurisdictions.
Binance, the world’s largest crypto exchange by trading volume, has been under fire from the UK Financial Conduct Authority (FCA) for its partnership with rebuildingsociety.com, a peer-to-peer lending platform. The FCA has imposed restrictions on rebuildingsociety.com, preventing it from approving crypto-asset financial promotions for Binance. The FCA has also warned UK consumers about the risks of investing in crypto assets through unregulated platforms.
FTX, another leading crypto exchange, has been embroiled in a legal battle with the US Securities and Exchange Commission (SEC) over its alleged involvement in illegal market manipulation and fraud. The SEC has accused FTX’s founder and CEO, Sam Bankman-Fried (SBF), of orchestrating a scheme to inflate the prices of certain crypto assets and defraud investors. The SEC has also charged FTX’s co-founder, Nishad Singh, and former CEO of Alameda Research, Caroline Ellison, with aiding and abetting SBF’s crimes.
Coinbase, the largest US-based crypto exchange and the first to go public on Nasdaq, has also faced resistance from the SEC over its proposed launch of a lending product called Coinbase Lend. The SEC has threatened to sue Coinbase if it proceeds with offering interest-bearing accounts to its customers without registering them as securities. Coinbase has filed a motion to dismiss the SEC’s claims, arguing that its lending product does not involve any investment contracts or notes.
The regulatory challenges faced by these crypto giants have cast a shadow over the crypto market, which has already been under pressure from external factors. The ongoing conflict between Israel and Hamas has sparked fears of a wider war in the Middle East, which could disrupt global oil supplies and trigger inflation. The US Consumer Price Index (CPI) report for September also showed a higher-than-expected increase in inflation, raising expectations of an earlier-than-anticipated tapering of monetary stimulus by the Federal Reserve.
The only silver lining for the crypto market this week was the news that Grayscale, the largest digital asset manager in the world, may get a second chance at launching a Bitcoin-spot exchange-traded fund (ETF) in the US. Grayscale had applied to convert its existing Bitcoin trust into a Bitcoin-spot ETF, but was rejected by the SEC in July. However, a court ruling in August overturned the SEC’s decision and ordered it to reconsider Grayscale’s application. The SEC decided not to appeal the court ruling, giving Grayscale another opportunity to make history as the first Bitcoin-spot ETF provider in the US.
The crypto market is expected to remain volatile in the coming weeks as it awaits further developments on the regulatory front. Investors should exercise caution and due diligence when dealing with crypto assets and platforms.