The day of the first hearing of the Subcommittee on Digital Assets saw the crypto markets drop significantly, with Bitcoin falling to its 7-week low.
One of the busier days of one of the busier weeks for crypto in the first quarter of 2023 saw the prices of Bitcoin, Ethereum, and several cryptocurrency-related stocks drop by between 6% and 10%. The day saw an opinion piece written by the SEC Chair Gary Gensler, remarks on digital asset regulation made by the Fed’s Michael Barr, and, perhaps most impactfully, the first hearing of the Subcommittee on Digital Assets, Financial Technology, and Inclusion.
The day’s price trends were a continuation, albeit in a more dramatic fashion, of trends seen since the start of the week. Most major digital assets, and cryptocurrency-related shares, have been trading slightly in the red for the better part of the week, which featured a selection of important positive and negative developments for the industry.
Bitcoin Hovers Just Above $20,000 as an Active Week Nears its End
While Bitcoin has proven remarkably stable after its January rally, its price took a decidedly downward trajectory by Thursday afternoon. In just a matter of hours, its value dropped from over $21,500 to just above $20,300. A similar behavior could be observed with the world’s second-largest cryptocurrency—Ethereum—which also found itself about 6% in the red.
Major digital assets-related stocks also saw a significant drop. MicroStrategy (NASDAQ:MSTR) was down more than 9%, Coinbase (NASDAQ:COIN) nearly 8%, and the Grayscale Bitcoin Trust (OTC:GBTC) lost almost 11% even though it scored an important victory against the SEC only a few days earlier. Still, the most dramatic drop came from Silvergate (NYSE:SI), which lost 42% throughout the day’s trading.
Still, Silvergate’s latest halving is not particularly surprising considering its parent company revealed it will wind down its operations, and close down the bank on Wednesday afternoon. Indeed, rather than being caused by the current digital assets downturn, the downfall of Silvergate is a likely culprit for the decisively bearish sentiment seen within the cryptocurrency sector.
Despite the setbacks, the ongoing week also saw several coups for digital assets. Despite Grayscale’s successful day in court, a bankruptcy judge recently approved the acquisition agreement between Binance.US, and Voyager Digital, despite regulatory opposition. Furthermore, the largest creditor of the long-collapsed Mt. Gox revealed it would not be selling the Bitcoin it is set to receive, alleviating some concerns about the future price of the cryptocurrency.
Fed Wants More Control Over Stablecoins, Gensler Doubles Down on SEC’s Approach
This Thursday also featured the speech of the Federal Reserve’s Michael Barr at the Peterson Institute for International Economics. Barr explained that he sees the Fed’s mission on digital assets as clear and expressed a great need for strong guardrails that give just enough leeway to facilitate innovation. While taking the time to praise the possibilities offered by blockchain, Barr was somewhat more skeptical about the value of cryptocurrencies themselves. Additionally, he reiterated Chair Powell’s stance that stablecoins fall firmly within Fed’s jurisdiction.
Later in the day, SEC’s Chair Gary Gensler shared his opinion piece on digital assets and the Commission’s recent actions with regard to the sector. In his text, Gensler once again claimed that the law, when it comes to cryptocurrencies, is very clear. Furthermore, he stated that he finds the argument that there is no clarity for firms from the industry “unpersuasive”.
Gensler also wrote that it often looks as though cryptocurrency companies are attempting to get SEC’s approval without making an effort to actually become compliant. He added that, despite the claims made by multiple firms, digital assets businesses willing to talk to his agency are not numerous. He also highlighted the fact that the Commission had already brought more than 100 cases against the companies in the industry, and, later on Thursday, Lee Reiners, one of the witnesses at the day’s hearing in Congress, pointed out that the SEC won all of them.
The Hawks and the Doves of the Digital Assets Subcommittee
Thursday, March 9th, also may yet prove a historic day for digital assets in the US as it featured the first hearing of the Subcommittee on Digital Assets, Financial Technology, and Inclusion. While the day failed to offer a clear way forward, it demonstrated that the Subcommittee is staffed in equal measure with digital asset proponents and cryptocurrency critics.
The topics at the hearing were varied, ranging from the question of whether digital assets should overwhelmingly be classified as securities or commodities to the possible terrorist threat posed if the cryptocurrency industry is forced to continue its development outside the United States. The positions expressed by the members, as well as by the witnesses, were likewise varied. Some, like Congressman Emmer—well-known as a zealous defender of digital assets—stated that the current crackdown against the sector is a part of the Biden Administration’s plan to limit financial freedom and lead America down a more authoritarian path.
Others, like Congressman Sherman, were highly critical of cryptocurrencies, stating that their name already positions them as “hidden” money which could only be appealing to “bad actors”. Representative Lynch also rejected the idea that FTX, with all the fraud it committed, was merely “a bad apple” and designated the entire industry as rotted.
A major concern for the digital asset advocated, both among the members and the witnesses, was that the United States is severely falling behind other developed economies regarding cryptocurrency regulation. The concern is that the US is at risk of losing its crucial position in the global economy due to its failure to properly and timely address digital assets.
Congresswoman Houchin, one of the proponents from the Subcommittee, went so far as to say that the race to properly facilitate the development of digital assets is the space race of our time.
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