Top Story
Crypto Regulation
The Story
The US government is getting serious about regulating crypto.
Why?
In March, President Biden issued an executive order calling on federal agencies to look into the risks and benefits of cryptocurrencies. Some of the top concerns: Protecting investors (hint: from scams like rug pullsand pig butchering), combatting illicit activity, and safeguarding financial stability (hi, Bitcoin volatility).
What could regulation look like?
It depends. Partially on whether or not the gov decides crypto is considered a security. If it is, then it would fall to the Securities and Exchange Commission (SEC) to regulate crypto markets. Just like they do with other securities like stocks. Recent events hint that crypto is a security. See: The SEC v. Ripple Labs Inc. case and the $1.26 million fine the SEC issued Kim K. But TBD.
Is regulation a good thing for investors?
It could be. More government oversight could help stabilize the volatile crypto market and reduce some risk for investors. It could also help protect investors from hacks and scams. But it might limit how you can buy and sell crypto, especially via decentralized exchanges (aka DEXs) like Uniswap. Because regulators could require crypto to be sold through trusted third parties. Kind of like how stocks are sold. And not all crypto enthusiasts are excited about that. Reminder: In theory, crypto was designed to be decentralized, aka eliminate the need for financial middlemen.
theSkimm
The US gov is still trying to figure out how to classify crypto. The million-dollar question: Is crypto a security? In practice, it already seems to be. But a regulatory framework could make it official.
And Also…This
Who’s in hot water…
Sam Bankman-Fried, aka SBF, the founder of the crypto exchange FTX. Earlier this month, CoinDesk reported on problematic links between FTX and Alameda Research, another company founded by SBF. Which led to the selloff of a coin affiliated with FTX called FTT, and ultimately, financial trouble for the exchange. Binance, another crypto exchange, tentatively agreed to acquire FTX but changed its mind the next day. So last week, FTX filed for bankruptcy. Just hours after the announcement, almost $515 million disappeared from FTX in an apparent hack. Now, the Justice Department is reportedly looking into criminal charges and the House is holding a hearing on FTX’s collapse in December.
Psst…”Skimm This” interviewed an expert about what FTX's demise means for the rest of the crypto world and what potential investors can learn from it. Tune in here.
Which crypto exchange could be collateral damage…
BlockFi. Earlier this week, the crypto lending platform acknowledged that it had “significant exposure” to FTX. Hint: This summer, BlockFi received a $400 million revolving credit line from FTX, and issued loans to the FTX-affiliated trading firm Alameda Research. In the wake of FTX’s collapse, BlockFi is reportedly considering filing for bankruptcy and handing out pink slips.
What else is reeling from FTX’s downfall…
The crypto market. As of Thursday, the crypto industry's total market value fell below $800 billion. In the immediate aftermath of FTX’s collapse, other crypto exchanges like Genesis were overwhelmed with customers making withdrawals. Even Bitcoin and Ethereum felt the impact, dropping by more than 20%.
What's channeling Tom Cruise and getting into risky business...
Pensions. Some pension funds are investing in alternative assets, like crypto, in the hopes that potentially high returns will help them meet funding gaps. But the risk might not be worth the reward. Especially for millions of retirees who depend on their pensions.
What’s making DeFi enthusiasts sweat…
The Digital Commodities Consumer Protection Act. The bill might make it harder for decentralized exchange to comply with forthcoming regulations. Which, according to some crypto experts, could be a de facto ban on decentralized finance
Thing to Know
Rekt
Aka wrecked. Crypto enthusiasts use it to describe someone whose finances are in bad shape because their crypto assets plummeted in value. Typically from a bad trade or investment. Example: A crypto trader who put her savings into TerraUSD, which (spoiler) collapsed earlier this year, might be referred to as rekt.
Pop Quiz
Question: What is a crypto whale?
A. A rare cryptocurrency coin
B. An investor who holds large amounts of crypto
C. A crypto lender who charges high-interest rates
D. A casual crypto trader who’s just having a good time
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Pop Quiz
Answer:B. An investor who holds a large amount of crypto. A whale can be an individual or an entity. They can make big waves in crypto markets when they buy or sell crypto. Which can make coin prices volatile.
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