This is What Damaged the Cryptocurrency Market
For most of 2018, cryptocurrencies were in free fall mode.
But most of that was from investor overreaction from two major stories.
Rejection from the U.S. SEC
In August 2018, the U.S. rejected nine Bitcoin ETFs. In fact, it rejected two ETFs by ProShares that would track Bitcoin future contracts. It denied five inversed and leveraged ETFs from Direxion. And it denied one from GraniteShares.
But it wasn’t a surprise.
The US SEC cited failure to prevent manipulation and fraud as a reason for denial. It also noted that failure to prove Bitcoin markets are “markets of significant size” as another reason.
Also, the SEC has not been offered any evidence to prove the size of the Bitcoin futures market.
“Surveillance-sharing with a regulated market of significant size related to Bitcoin is necessary to satisfy the statutory requirement that the Exchange’s rules be designed to prevent fraudulent and manipulative acts and practices,” they noted.
What we have to consider is that eventually the agency will approve an ETF.
In addition, President Trump played a significant role in Bitcoin ETF approval.
The President appointed Republican Elad Roisman to the U.S. SEC. In fact, he may be the missing piece that could tilt the balance in favor of approval.
With a strong stance on fair regulation of cryptocurrency, Roisman noted:
“The SEC must examine and re-examine its rules, regulations, and guidelines to ensure that they are still working as intended to accomplish the SEC’s mission. This is most recently manifested in areas such as data protection and cybersecurity as well as the emergence of new investments and technologies such as initial coin offerings and blockchain.”
Now, the majority in favor of cryptocurrencies and the ETF jump to 3-1.
For example, Chairman Jay Clayton is likely to approve, as is Commission Hester Peirce who once said there was “no reason” why an ETF should not happen. The only holdout is likely to be Commissioner Robert Jackson Jr. He is showing very little support for a Bitcoin ETF or cryptocurrencies at all.
“The effect it will have on the perceived legitimacy of the market, on bringing in institutional money, and ultimately on the price of Bitcoin will be staggering,” notes Medium.
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Fake News about Goldman Sachs
“I really have to describe the news as fake news.”
That’s how Goldman Sachs CFO Martin Chavez labeled a report that the firm was shelving its Bitcoin trading desk. “I never thought I would hear myself use this term but I really have to describe that news as fake news,” Chavez said, according to CNBC.
“It wasn’t like we announced anything or that anything had changed for us.”
The news came hours after it was reported it had backed down on plans to start its dedicated cryptocurrency desk. By the time the news was clarified, most coins had been crushed in a bloodbath of selling.
In fact, Goldman wasn’t abandoning anything.
Instead, it’s choosing to focus on other products, most notably its custody product.
That means Goldman would hold the securities on behalf of the funds, which then cuts the risk for clients worried about potential loss. Should that happen, the bank could provide quite a boost to the number of funds betting on virtual currency.
The best part — Goldman wouldn’t be the only bank to enter the custody space.
Earlier this year, Nomura created a custody consortium called Komainu. Bloomberg also notes that Bank of New York Mellon Corporation, JP Morgan Chase, and Northern Trust are “working on cryptocustody services or exploring it.”
In short, the sell-off was based on nothing more than fear and misinformation.
The herd overreacted. That’s why the market fell apart as poorly, as it did.
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