Regulation Woe Sets Crypto Market Up For Big Gains

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Regulation Woe Sets Crypto Market Up For Big Gains

Bitcoin, Trading At Cost

The cryptocurrency market, led by Bitcoin, surged to astonishing highs last fall but has since fallen from grace. The market, spurred by actions in China, Korea, Japan and elsewhere, sold off as regulators untangle fact from fiction. On the one hand cryptocurrencies are a viable technology based on distributed ledger and blockchain theories. On the other it can be used like a currency although most are not intended for that purpose. In many jurisdictions cryptocurrency trading is not regulated other than in the most cursory way. The regulators are feeling their way as the market evolves, leaving traders uncertain about the future of their digitized assets.

Japan is the latest to make waves in the digital market. The Japanese regulator FSA does not officially regulate the cryptocurrency market although crypto trading is allowed, and the agency has been slowly tightening its grip. To date it has forced 4 exchanges to cease operations and sent business improvement letters to another 8. The latest include an improvement letter to Last Roots and a cease operations order to External Link. The move is in response to a recent hack of Coincheck which resulted in the loss of $534 NEM. Traders can expect to see the FSA continue to watch over the market and take action as it sees necessary.

Market strategist Tom Lee of Fundstrat pointed out that Bitcoin is trading around the cost of production, a price level it is not likely to break. He expects the entire cryptocurrency complex to bounce back by the end of the 2 nd quarter with a year-end price target on BTC of $25,000. We agree that BTC and the entire cryptocurrency market will bounce back, the technology is too valuable, but think the end-of-year target should be closer to $40,000. Once BTC breaks to new highs a surge to $30,000 will soon follow, with momentum taking up another 30% by the end of the year.

What will drive the reversal? For one, regulation is a good thing for the cryptocurrency market and will, in the long run, lead to a wider acceptance of the technology. In the near term a cooling of regulatory woe and even good-news is expected. While regulators are tightening their grip, they are not outlawing the trade. After that a series of positive business developments from megacorps like Amazon and Starbucks will help to drive sentiment.

Bitcoin is now trading just above $6,550 and at a very important support level. If this level is broken the market could collapse. A bounce from this level would be bullish and is what we expect to see form over the next few weeks and months. The indicators are weak and point lower, in line with the shorter term trend, but are also consistent with support at the current level. The down trend line is the more important line to watch. A fall from it would confirm the down trend and possibly lead to a break of support. We expect to see this line break as time moves forward and support continues to hold. Once that happens downward pressure on prices will begin to let up, allowing the reversal rally to begin.

Four Things To Watch For In Cryptocurrency Regulation

This photo shows a Vietnamese cryptocurrency investor looking at a ‘world coin index’ in Hanoi on . [+] April 12, 2020. Vietnam has vowed to tighten regulations on cryptocurrencies as authorities investigate an alleged multi-million-dollar fraud in the country, where digital units are traded in a shadowy and unregulated market. (Photo credit should read NHAC NGUYEN/AFP/Getty Images)

Remember the good old days in cryptocurrency-land? Scores of passionate, earnest entrepreneurs with nothing more than an idea and a whitepaper could raise tens of millions of dollars on a promise. Today, not so much. Regulatory attention to cryptocurrency investments may have a chilling effect on these go-go launches.

To be sure, it is not over yet: In 2020, crypto-enthusiasts saw their coins and tokens surge to a cumulative high of $750 billion in market value before the current “crypto winter” of global market capitalization fell to less than $400 billion. But even at these levels, cryptocurrencies are up approximately $300 billion in aggregate since April 17, 2020. This represents an 11x investment for those who invested just one year ago.

One thing is certain—regulators are looking to catch up.

The rapid ascent of cryptocurrency valuations caught even the most astute regulators off-guard, and they are scrambling to understand the risks and provide guidance. According to Coindesk, the SEC is specifically concerned about Initial Coin Offerings (“ICOs”) due to their security-like nature, and recent comments by the Commission appear to foreshadow coming regulations of ICOs as securities.

Questions about the inherent properties of cryptocurrencies have caused confusion to both the regulator and layperson. Specific issues continue to puzzle the top legal and financial experts in areas of securities and commodities law, capital gains taxes, international transactions, anti-money laundering, and trading and investment practices.

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While cryptocurrencies remain a relatively unregulated field, 2020 may change that.

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Furthermore, fraud in the crypto-space is spurring regulators to learn and potentially act quickly. Investors and speculators have already been scammed out of millions. ICOs may be utilized for money laundering and terrorist financing. Certain studies report that as many as 59% of Americans don’t report appropriate cryptocurrency-based capital gains to the IRS.

And, the government is hardly sitting idly by:

  • In early 2020, the SEC sent requests for information to crypto-funds, ICOs and exchanges;
  • The IRS collected 14,000 Coinbase account user’s activity logs; and
  • OFAC indicated that it may be adding crypto-wallet addresses to its Sanctions List.

As the government evaluates the responses to its subpoenas, we should expect that mid- to-late-2020 will hold a new wave of guidelines and/or regulation.

AUSTIN, TX – MARCH 10: Fred Ehrsam, co-founder of Coinbase (L) and Rolfe Winkler of The Wall Street . [+] Journal speak onstage at ‘Is Bitcoin the Future of Money?’ during the 2020 SXSW Music, Film + Interactive Festival at Austin Convention Center on March 10, 2020 in Austin, Texas. (Photo by Tammy Perez/Getty Images for SXSW)

What about state and international bodies?

Within the United States, state governments are reacting differently. For example, Arizona is attempting to pass the “Bitcoin Bill,” New York is requiring “BitLicenses” and Washington put reserve quotas on cryptocurrency exchanges.

Across the world, each nation is approaching the cryptocurrency regulatory puzzle differently. Estonia moved to digitize citizenship, healthcare and banking on the blockchain, and Algeria has banned them outright.

2020 is poised to be a year of regulatory clarity for cryptocurrencies – but in what capacity? Legislatively or via regulatory action? Under state or federal law? Or will it be some combination of all the above? And, even if government action can catch up, how long can that parity last before the crypto-space speeds ahead?

Governments inherently, and usually appropriately, move slowly and with deliberation, and investors may hesitate as they wait for government action. In that case, the market may need to step in to police itself. Cryptocurrency managers should anticipate and get ahead of these coming changes by identifying their own risk areas, developing mitigation controls or even a formal market-wide due diligence process.

In the cryptocurrency space, “best practices” is a phrase currently wide open and in need of a definition. Crypto-entrepreneurs who want to continue to ride the wave of growth should get on board now with a framework that makes investors comfortable – before the government makes investing impossible.

Q1’s Top Performing Cryptocurrencies Saw Big Gains

Garrett Keirns

Q1’s Top Performing Cryptocurrencies Saw Big Gains

The first quarter of 2020 saw dramatic price gains for the top cryptocurrencies, as the total market added nearly $7bn in value.

The so-called ‘blue chip’ cryptocurrencies – those with a market cap greater than $30m – saw aggressive growth in the first quarter, as bitcoin’s waning dominance set the stage for new players to assert themselves. Others, too, saw impressive gains that occurred relatively quickly in recent weeks.

All told, the cryptocurrencies posted a median price increase (in USD terms) of 180.56% over the course of the quarter.

Top performers

The two top performers from Q1 2020 were Decred (DCR) and Golem (GNT), which gained 2,410.6% and 835.5%, respectively.

Decred is a cryptocurrency that uses a hybridized consensus system instead of relying on either solely proof-of-work (POS) or proof-of-stake (POW). Similar to bitcoin, the DCR protocol sets a 21 million cap to the number of coins generated on the network.

Currently, the largest trading pair for DCR is DCR/BTC. Poloniex serves as the largest marketplace for DCR trading. The majority of DCR’s gains came toward the end of the quarter, and the highest daily volume was achieved on 27 March with $14.03m.

As for Golem, most of its gains came during the latter half of Q1. Cryptocurrency exchange announced markets for the token on 17th February, and following the announcement, the price rose approximately 100% with 48 hours, from $.02 to $.04 on 19th February, with a volume of $6.67m.

Prior to the Poloniex announcement, average daily volume was between $20k and $100k per day.

A second spike in price occurred on 21st March, following the release of news that GNT would be integrated into Shapeshift.io, an altcoin exchange platform. That particular day, the price increased approximately 22% from $0.045 to $0.055 on $5.28m in 24-hour volume.

The final day of Q1, Golem developer Grzegorz Borowik published a blog post announcing Golem for macOS. The news buoyed the market, which boosted GNT to an all-time-high of $0.094 on volume of $11.4m.

Bitcoin struggles

Bitcoin’s performance in the first quarter was more muted.

The CoinMarketCap’s Bitcoin Dominance Index – which measures bitcoin’s market share relative to other cryptocurrencies – shed nearly 20%, ending the quarter at 68%. A weakening Bitcoin Dominance Index points to investor preference for alternative cryptocurrencies.

Bitcoin (BTC) gained just 7.8% over the course of the quarter. This was a noticeable decrease from its 35.4% gain in Q4 2020.

General fear, uncertainty and doubt has permeated the bitcoin community and can arguably be blamed for the anemic performance of the cryptocurrency in comparison to alternatives.

Furthermore, bitcoin’s volatility has tapered off as a result of its maturation, coupled with the evolving narrative that the cryptocurrency is a safe-haven asset.

Chart image via Shutterstock

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

Update #2: This article has been amended to account for the digital currency decred.

Update: This article has been updated to account for market data on the dates between 26th March and 31st March.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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