Regulator Chatter on Cryptos Builds – Can Regulator Action Hurt Bitcoin (BTC) Again?
In late 2017 and early 2018, Bitcoin (BTC) and the broader crypto market tanked in response to regulatory action. This year, Bitcoin (BTC) and others have struck all-time highs. The threat from regulators remains, however.
The Bank of England
Over the weekend, the BoE voiced its concerns about the crypto markets and talked of the need to build a global framework. The BoE’s Financial Stability Report, released last week, had a section dedicated to crypto assets.
When considering the three other major headings, these being COVID and the Economy, Bank Resilience, and Mortgage Measures, there is no doubt that the BoE is eager to embed tighter rules and have greater oversight.
The Report stated that crypto assets currently pose limited direct risks to UK financial stability. However, they will present a number of financial stability risks if they continue to grow at their rapid pace, and as they become more interconnected with the wider financial system.
In recent years, institutional investors have increased crypto holdings as well as investments into crypto projects. The BoE highlighted in the report that a large fall in crypto asset valuations may cause institutional investors to sell other financial assets and potentially transmit shocks through the financial system.
The focus from the BoE comes following Binance’s recent withdrawal from Singapore over regulatory issues. China and India are amongst other countries that have impacted the crypto markets.
Just last week, there were reports of the Reserve Bank of India (RBI) saying that it would prefer a complete ban on cryptocurrencies. This week, the markets had expected India’s parliament to vote on banning certain cryptos. Following the news of the RBI’s views, however, there were reports that the crypto bill was not presented to the lower house of parliament.
Unlike 2018, there are a number of key jurisdictions that are now considered crypto-friendly. As a result, price action across the crypto market suggests that a similar sell-off is unlikely to materialize. This is assuming that regulators across key crypto markets do not impose blanket bans on cryptos or even simply ban institutional investment.
Such an outcome would lead to a panic sell-off though returning to March 2020’s low of $4,000 seems unlikely.
As central banks and governments look to roll out their own digital currencies, however, anything is possible. This uncertainty could peg Bitcoin (BTC) and the crypto majors back from hitting new all-time highs.
At present, the chances of a global regulatory platform and oversight committee remains slim. This should, therefore, continue to allow jurisdictional arbitrage and support crypto asset price growth.
At the time of writing, Bitcoin (BTC) was up by 0.09% to $46,941. Avoiding sub-$46,680 levels would support a run at $48,000 levels on the day. Resistance at $48,500 remains a key level, near-term, however.