Fed officials hiked rates again this week. Where is bitcoin going next? (Photo by Dan Kitwood/Getty … [+]
Recently, Federal Reserve officials announced that they had increased the target range for the federal funds rate by 25 basis points, a decision that could impact a wide range of risk assets, for example cryptocurrencies like bitcoin.
After this latest development, what will the world’s most prominent digital currency do next?
What key variables should market observers focus on in the coming weeks and months?
Several analysts offered their input on this matter, highlighting the crucial developments that interested parties should watch.
“I think most market participants are looking at a few key catalysts going forward,” Brett Sifling, an investment advisor for Gerber Kawasaki Wealth & Investment Management, wrote via emailed comments.
Ripple Case
One key variable he cited was the U.S Securities and Exchange Commission’s lawsuit against Ripple Labs, Inc. and two of its key executives, which the government agency launched in 2020.
“First, you have the recent court rulings on the Ripple/XRP case that has split over to most of the industry,” said Sifling, speaking to the highly visible decisions handed down earlier this month by U.S. District Judge Analisa Torres.
On July 13, Torres ruled that so-called “Programmatic Sales” of XRP, made through algorithms on exchanges, did not violate U.S. securities laws, while “Institutional Sales,” made directly to customers such as hedge funds and other institutions, did.
While the SEC has not yet announced plans to appeal this decision, recent documents filed in the Terraform Labs case indicate that the government agency may pursue that option.
“Contrary to Defendants’ assertions, much of the Ripple ruling supports the SEC’s claims in this case and rejects arguments Defendants have raised here,” lawyers for the SEC wrote.
“However, with respect to the Programmatic and other sales, the SEC respectfully avers that Ripple conflicts with and adds baseless requirements to Howey and its progeny. Respectfully, those portions of Ripple were wrongly decided, and this Court should not follow them,” they stated.
“SEC staff is considering the various available avenues for further review and intends to recommend that the SEC seek such review.”
Sifling emphasized the importance of these developments, stating the following:
“Any news or developments from this case will be closely watched by crypto investors, even if it doesn’t directly affect Bitcoin specifically.”
Regulatory Uncertainty
The digital currency industry is dealing with widespread regulatory uncertainty, as regulatory agencies have vied for control of digital assets, aiming to classify them in different ways.
The Commodity Futures Trading Commission (CFTC) has previously claimed that it has jurisdiction over digital currencies, arguing that they fall under the Commodity Exchange Act.
The U.S. federal court system later upheld this assertion when U.S. Judge Judge Rya W. Zobel ruled in September 2018 that the government agency did in fact have the authority to “prosecute fraud involving virtual currency.”
That same year, several federal courts ruled in favor of the CFTC’s ability to regulate digital currencies.
Multiple SEC officials have also weighed in on the matter. Former Chair Jay Clayton and current Chair Gary Gensler have both stated that bitcoin is not a security, meaning that he SEC does not have jurisdiction over the cryptocurrency under securities laws.
When it comes to many other digital currencies, the government agency’s authority is less clear.
In February, Gensler stated that “everything else other than Bitcoin is a security,” according to CryptoSlate.
However, the government official apparently provided a different view during a presentation he made in 2018, according to Benzinga, which cited a video that was tweeted by crypto researcher Sam Lyman, who is also a Forbes contributor.
“Bitcoin. Ether. Litecoin. Bitcoin Cash. Why did I name those four? They’re not securities. Three-quarters of this market is probably not securities.”
Andrew Rossow, who is both an attorney and also the founder and CEO of AR Media, offered his perspective on this matter through email.
“There is a major focus right now on regulatory developments between the SEC and CFTC in terms of who should have the regulatory authority to govern digital assets and the core responsibilities within those respective swim lanes,” he stated.
Bitcoin ETF Proposals
Multiple analysts also brought up the various proposals for spot bitcoin exchange-traded funds (ETFs) that are under review by the SEC.
Earlier this month, Reuters reported that the government agency was considering six such applications, including one submitted by major asset manager BlackRock, Inc.
Thus far, the SEC has rejected multiple applications for spot bitcoin ETFs, repeatedly emphasizing that it has concerns about the digital currency’s vulnerability to market manipulation.
Sifling commented on these developments after providing his input on the Ripple case.
“Next, we have continued rumblings of a Bitcoin ETF and increased institutional adoption,” he said.
“If we do get an approved ETF, it should bode well for digital assets and Bitcoin’s future as institutions feel more comfortable gaining Bitcoin exposure.”
Armando Aguilar, an independent cryptocurrency analyst, also spoke to these applications via emailed comments.
“Spot BTC ETF filings by heavy weight investment managers has brought optimism to the market and this can be seen in BTC wallet creation with large numbers registered in July,” he said, citing figures from data provider Glassnode.
Bitcoin Halving
The market experts who provided input for this particular article also emphasized the impact of Bitcoin’s upcoming halving, which is scheduled for April 2024. This event, which will reduce the mining incentive to 3.125 bitcoin, will cut the digital currency’s rate of new supply by 50%.
Sifling offered his view on this development.
“Lastly, we have the next Bitcoin halving around April 2024. While this is still a ways off, markets tend to trade ~6 months ahead of news events and I would expect conversations around this event to pick up in the near future.”
Market History
Tim Enneking, managing director of Digital Capital Management, offered analysis using a different angle, viewing the coming months through the lens of market history.
“Heading into the August doldrums, and absent any remarkable news, I would expect BTC to continue to move generally sideways,” he stated via email.
“September has traditionally been a poor month for crypto, and October a great one. That may not be the case this year as investors focus more on the halving next Spring and front run an October move up,” said Enneking.
Disclosure: I own some bitcoin, bitcoin cash, litecoin, ether, EOS and sol.
