A worker cleans units at a cryptocurrency mining farm.
Photographer: Andrey Rudakov/Bloomberg
Photographer: Andrey Rudakov/Bloomberg
A slew of regulatory moves announced this week is positive for the famously free-market-oriented cryptocurrency space, according to Fundstrat Global Advisors LLC.
Developments like the U.K. Financial Conduct Authority banning the sale of crypto derivatives and the U.S. Department of Justice issuing an enforcement framework are beneficial in the long term because they will help reduce nefarious activity in the industry, according to a report by David Grider, Tom Lee and Ken Xuan.
They cited regulators “cleaning up bad actors” as also helping. The market’s focus on news that Square Inc. bought Bitcoin and Bitcoin’s ability to push past $11,000 show that crypto can power through these things, the report said.
“Actions unsurprisingly indicate U.S. and global regulators are committed to stomping out illicit activity, securities violations, money laundering, price manipulation, and noncompliance with banking regulations,” the strategists wrote. “On balance, we view recent news as a positive for crypto markets, despite select smaller pockets of risk, and we believe the prevailing bull market trend is intact.”
Bitcoin has moved back above $11,000 after a successful defense of the $10,000 level in early September. Crypto enthusiasts were also cheered by Square Inc.’s purchase of $50 million in Bitcoin in a bet by Chief Executive Officer Jack Dorsey that it will be an instrument of financial empowerment.
In other recent developments, the founders of crypto trading giant BitMEX resigned their executive roles after being charged by U.S. authorities with skirting laws preventing money laundering. Cybersecurity pioneer John McAfee, who had been promoting cryptocurrencies, was arrested in Spain on U.S. tax-evasion charges.
Fundstrat cautioned that some areas within crypto might be vulnerable given the regulatory trajectory.
“We do see select crypto market segments as more exposed to regulatory risks than others and are worth watching closely,” with projects in decentralized finance — or DeFi — coming under pressure for a lack of know-your-customer and anti-money-laundering protocols, the strategists wrote.
“We see offshore quasi equity exchange tokens as an area of risk that investors may be underappreciating as some have had a history of compliance allegations,” they said, and “see further risks with crypto tokens exclusively listed on offshore exchanges where stricter U.S. investor prohibitions could limit liquidity and demand.”