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Weekly Comic: Crypto Market Collapse Highlights Regulatory Gaps

Cryptocurrency News Jun 29, 2022 19:44
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Scott Kanowsky

Investing.com -- Over the weekend, it happened again. Yet another company in the Bitcoin ecosystem announced a fresh round of layoffs, adding to the industry-wide malaise partly stemming from the sharp fall in the value of the digital coin.

Calling it a "tough, but necessary decision," Austrian crypto trading platform Bitpanda announced it would slash jobs. One estimate from Cointelegraph put the number of lost employees at about 277, with the overall workforce shrinking to roughly 730.

That follows a string of other crypto firms who cut jobs to keep their respective shops in order after the fall in Bitcoin brought trading activity down with it. Coinbase: Nearly a fifth of its workforce, more than a thousand people, gone. Gemini: 10% of its employees, out. BlockFi: 170 people, bye-bye. Crypto.com: 260, cut.

These moves came after a recent decline in the value of Bitcoin. The key cryptocurrency is down about 53% this year. Investor appetite for high-risk assets like digital coins has soured as rising inflation has prompted central banks to hike borrowing costs and remove massive amounts of economic support that helped fuel markets during the pandemic.

Other cryptocurrencies have been dragged lower by Bitcoin's downturn. According to a tracker of 500 major crypto tokens made by the Financial Times, the circulating value of these digital assets has tumbled by more than $2 trillion since November to now stand at $1 trillion - a level last seen in early 2021.

These falls triggered a further series of shocks that hit the complex web of services that manage much of the internal plumbing of the crypto market.

Celsius Network, the crypto investment business that claims to have 1.7 million customers, halted all withdrawals, swaps, and transfers on June 12, citing "extreme market conditions". Crypto exchange Binance later moved to do the same.

Elsewhere, crypto hedge fund Three Arrows Capital (3AC) collapsed after it was badly wrongfooted by the undoing of the Terra Luna stablecoin network, and declines in other so-called alt-coins this year. 3AC's fall laid bare risk management issues in crypto lending and investing platforms, with many of these companies now unable to meet a surge in loan redemption requests spurred by the slide in Bitcoin prices.

In one example, exposure to 3AC led Canadian crypto investment platform Voyager Digital to limit its daily customer withdrawals last week. That could impact over 4 million unique users and $5.8 billion in assets, according to data in Voyager's latest results.

This bear market for cryptocurrencies has given rise to worries that Bitcoin's sudden thrust into the zeitgeist may be over. Indeed, Google searches of "Bitcoin dead" touched some of its highest levels ever earlier this month, according to Google Trends.

Perhaps it is still too early to tell, but such concerns could be misplaced. What does seem more certain is a clear uptick in regulatory scrutiny around the world on the often murky inner workings of the crypto industry.

The U.S. Securities and Exchange Commission is reportedly investigating Celsius, while a securities enforcement official in Texas told Cointelegraph that regulators in the state - along with others in Alabama, Kentucky, New Jersey, and Washington - are all "looking into" withdrawal freezes at the company.

Meanwhile, SEC Chairman, Gary Gensler, warned digital token investors against betting on assets that offer returns "too good to be true".

The collapse of the Terra Luna network also led U.S. Treasury Secretary Janet Yellen to call for the regulation by the end of the year of stablecoins, or digital assets whose value is in theory stabilized by a peg to another currency or commodity.

Across the Atlantic, European Central Bank President Christine Lagarde claimed the lack of regulation is allowing crypto markets to cover up, among other things, fraud, illegitimate valuations, and "criminal dealings". Consumers, she flags, are at risk.

In Asia, South Korean officials say they have already started an investigation into the fall of Terra Luna.

On the opposite extreme, China banned all crypto exchanges and service providers last year, and its criticism of the industry has only intensified since then. An editorial on Sunday in the state-backed newspaper The People's Daily accused private cryptocurrencies of being the "biggest Ponzi scheme in human history".

What these regulations will actually end up looking like is, of course, anyone's guess. But as the job cuts and financial losses pile up, so will the litigation. Lawsuits over cryptocurrency losses are already starting to grow. Having a solid legal framework to undergird these cases will be essential.

 
 
Weekly Comic: Crypto Market Collapse Highlights Regulatory Gaps
 

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