TWR: Bitcoin Down — Our Take
What goes up must come down?
What a way to end an epic week for Bitcoin and Alts… What started off as pure euphoria for Bitcoin and an epic pump for Alts all came to a head late Wednesday night with a sharp sell-off and a pretty bloody Thursday. Most of us have been in this market long enough that we shouldn’t be shocked when Bitcoin corrects after a nice run but for whatever reason it always feels a bit panicky. Maybe the feeling during a sell-off stems from our strong conviction — like who is selling! Why?
If you zoom out and look at the bigger picture, this move down is hardly anything to panic about.
So, who/what is to blame for the sell-off? We can’t say for certain but our guess it has something to do with Malta-based crypto exchange OKEx reopening after being forced to suspend all account withdrawals 5 weeks ago. In a short blog post on Thursday, OKEx announced that it was lifting the freeze at 08:00 UTC (3AM EST). What followed was the biggest single-block outflow since May 2019. A total of 2,822 BTC were withdrawn with a large percentage flowing to Binance and other exchanges.
It is not clear that if this event was the catalyst for the price drop but Bitcoin plunged $3k in the early hours Thursday shortly before OKEx was due to start withdrawals.
We cover another possible cause for the sell-off in this week’s feature story below.
What we saw on the desk
The good news is we did not see one single coin sold yesterday — instead, we saw a ton of action on the buy-side as investors with money on the sidelines piled in as they finally got the pullback they were waiting for. We also saw clients who chased BTC up (big time) to near all time highs this week not get phased by the correction and instead, BTFD (bought the fu**ing dip)! BTC led the way for buys but ETH was a close second, followed by a mixture of alts and some more exotic tokens.
Rumour has it
US Treasury Secretary Steven Mnuchin might have a parting gift for the crypto space…
Coinbase CEO, Brian Armstrong took crypto Twitter by surprise Wednesday night when he blasted the outgoing Trump Administration’s rumoured plans to track owners of “self-hosted” cryptocurrency wallets.
“This proposed regulation would, we think, require financial institutions like Coinbase to verify the recipient/owner of the self-hosted wallet, collecting identifying information on that party, before a withdrawal could be sent to that self-hosted wallet”
Why is this a big deal? The essence of cryptocurrencies like Bitcoin is that they allow anyone who wishes to custody their own assets privacy and control of their transactions and assets overall. Users can create a wallet by downloading third-party software on their computers/smartphones or through hardware devices that store digital assets (creating their own bank, if you will). These types of self-custodial solutions come cheaper than traditional financial services.
Where is this coming from? The Financial Action Task Force (FATF) is an international standard setting body that makes recommendations about what its member jurisdictions should do with the implementation of their own laws. So basically what FATF does is every year makes recommendations about what a good global standard should be for anti-money laundering (AML) regulations. Last June, FATF said that at this point the law in the US and in most jurisdictions does not require any software providers, that is any companies that are providing self-hosted wallet software to comply with AML regulations. However, what the FATF did was flag self-hosted wallets as a potential risk that might require some further analysis by member jurisdictions. This was the first time that we’ve heard any signals from regulators that there is concern about people holding their own digital assets and processing transactions on their own.
Their ideas:
- Banning or denying platforms if they allow transactions with self-hosted wallets
- Introducing volume limits on peer-to-peer transactions
- Mandating that transactions occur with a financial institution
They were not recommending these ideas but they were throwing them out there as possibilities for their member jurisdictions to consider if they’re concerned about the current state of regulations on self-hosted wallets.
In the case of any of these ideas becoming enforced, here are some scenarios that could play out:
- The first countries to implement these regulations would put their status as a financial and innovation hub at risk. This would open the door for competitor countries to become even more friendly in order to attract business and induce a brain drain on the imposing country.
- We could see a bifurcated world where we have one world of these self-hosted wallets that can only interact with another but theres no way to get any interaction with hosted (or, custodial) wallets. Based on the premise behind Bitcoin and other cryptocurrencies, this could have a positive impact on price for cryptocurrencies held outside of this closed, highly regulated financial system.
I don’t mean to instill fear by addressing these rumours. I’m only digging deeper on a topic that we find interesting and that you’re not going to find too much information on when browsing your daily media outlets. If regulators did go down this path, however, they would be fighting against open source wallets and open source currencies. Moving forward with their ideas would be the equivalent of having to identify the people you speak with over the internet on a daily basis. Very tough to do on many different levels.
At this point the FATF is sticking pretty strictly to the idea that regulations apply to hosted-wallet to hosted-wallet transactions (i.e. Coinbase to Binance). The idea is that these institutions should understand who owns these funds, where they’re going, who they’re being sent to, where they came from, what is the purpose of the transaction so that they can comply with current reporting requirements (i.e. looking for and reporting on suspicious activity).
This is all to be expected with any emerging technology that has the ability to overwhelmingly revolutionize an entire financial system. The transition from where Bitcoin is today, to a global financial powerhouse is not going to be easy sailing. We can count on governments crackdowns, attempts at bans, and everything in between at every corner as we continue down this path of sovereign monetary policy.
In case you missed it…
- PayPal and Cash App have scooped up 100% of newly mined Bitcoins https://markets.businessinsider.com/currencies/news/paypal-cash-app-buying-newly-mined-bitcoin-2020-11-1029830600
- Bitcoin Black Friday Deals https://www.coindesk.com/yes-you-can-spend-your-bitcoin-this-black-friday
- OKEx sees biggest Bitcoin outflow in 8 months after resuming withdrawals https://ca.finance.yahoo.com/news/okex-sees-biggest-bitcoin-outflow-094758922.html
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