15th June 2022 > > Regulatory squabbles.

tl;dr

Recent regulatory developments are being squabbled over.

Market Snap (at time of writing)

Market Wrap

Wholesale liquidation of leveraged longs has exacerbated the sell-off in both BTC and ETH.

10-year US yields breached 3% on 6th May, just five weeks ago. In that short period of time, bond portfolios have lost 4% of notional. That has got to be hurting a whole swathe of the financial services industry.

We also see spreads between German and Italian 10-year bonds are widening quickly with the mooted end to quantitative easing (QE). The last time this happened was the precursor to the sovereign debt crisis and adds further downward pressure on all risk markets. The door marked exit for holders of PIGS (Portugal, Italy, Greece, and Spain) debt is very small indeed.

Curious Cryptos’ Commentary – Regulatory battles

Mairead McGuinness, the EU Commissioner for Financial Services, Financial Stability, and Capital Markets Union (presumably her business card is larger than standard with that job title) has weighed in on the debate about the Markets in Crypto Assets (MiCA) legislation – see CCC 14th and 15th March 2022 amongst others:

“MiCA rules will be the right tool to address the concerns on consumer protection, market integrity and financial stability. This is something that is so urgent given recent developments.”

By recent developments I think one can assume she is referring to the Terra fiasco (covered by the CCC on several occasions during May), and the recent restrictions on withdrawals by Celsius, a centralised exchange (CEX) which I fortunately have never used.

“Regulating all crypto-assets — whether they're unbacked crypto-assets or so-called stablecoins — and crypto-asset service providers is necessary.”

MiCA is a remarkably sensible piece of legislation which will go a long way in fostering institutional adoption of cryptos as a new asset class. However, Mairead is wrong on a couple of points.

Firstly, MiCA is now in the so-called “trilogue” process which involves seemingly endless discussions between the three difference executive bodies of the EU (European Commission, European Parliament, and European Council). Bureaucrats and the whole gamut of government appointed civil servants are always the subject of sharp criticism from the CCC, for very justifiable reasons, none more so than this unholy trinity. Mairead’s use of the word “urgent” in this context is simply laughable and damages her professional reputation.

Secondly, she trots out a very tired old trope about cryptos lamenting their unproven role in helping some individuals to perhaps circumvent the sanctions placed against the kleptomaniacal regime of murderous Putin and his henchmen.

I wonder if she points out to Chancellor Olaf Scholz when they are together that since the war started in Ukraine, the EU has paid Russia EUR 35 billion for oil and gas, most of which has been funded by Germany.

No, I thought not.

…

Over in the US, there is continued fall-out from the Lummis-Gillibrand Bill (see CCC 8th & 9th June 2022).

Again, a very sensible piece of regulatory legislation has introduced an area of uncertainty that may scupper its chances of being adopted.

Specifically, the legislation classifies BTC and ETH as commodities - and therefore regulated by the Commodity Futures Trading Commission (CFTC) – but stays silent on whether the thousands of alts are securities – and therefore regulated by the Securities Exchange Commission (SEC) – or not.

Gary Gensler, Chair of the SEC, is continuing his campaign to classify all cryptos as securities:

“We don’t want to undermine the protections we have in a $100 trillion capital market. Like behaviours should have like treatment.”

It would be better for everyone involved if this question was settled once and for all, giving nascent crypto businesses clarity and certainty as to the regulatory environment going forward.