Little ‘Ripple’ Effect, as BTC, ETH Hit New Highs

Old-school financial markets are in what’s commonly referred to as a “low trading volume” period. This usually happens around Thanksgiving, Christmas and New Year’s.

Meanwhile, crypto continues …

Indeed, lost, perhaps, amid all the celebration, is the fact that Bitcoin (BTC, Tech/Adoption Grade “A-”) is still surging to new all-time high after new all-time high. This morning on coinmarketcap.com, the world’s first and biggest cryptocurrency is at $27,349.82.

But yesterday, it hit $28,288.84, crossing 28K only hours after crossing 27K for the first time. And BTC’s market capitalization now exceeds $500 billion.

Also, Ethereum (ETH, Tech/Adoption Grade “A”) traded above $700 over the weekend for the first time since May 2018. ETH surged 11% on Sunday alone.

This is happening despite the fact that the Securities and Exchange Commission (SEC) has charged Ripple (XRP, Tech/Adoption Grade “B”) and two of its executives for raising over $1.3 billion through what the U.S. federal regulator described as “an unregistered, ongoing digital asset securities offering.”

This clearly marks a new phase of crypto’s development. XRP was pitched as a regulator-friendly alternative to Bitcoin. Now, it’s in the SEC’s crosshairs. And XRP’s price reflects the uncertainty of its position.

U.S. based exchanges are in a difficult position. Coinbase, which is right now preparing its initial public offering (led by Goldman Sachs…), is particularly hard-pressed, as CoinDesk’s Nikhelesh De notes:

Anthony Tu-Sekine, a partner at law firm Seward & Kissel LLP, told CoinDesk that trading platforms like Coinbase “are between a rock and a hard place.”

“They can continue to list XRP based on their previous analysis that XRP is not a security, with the hope that a court will find that XRP is not a security,” he said. “Or they can take ‘remedial’ actions such as restricting trading for wallets held by U.S. persons, or take it off their exchange altogether.”

These scenarios are likely already covered by the exchanges’ terms of service policies, he said.

Exchanges like Coinbase would “be crazy not to consider” delisting, said Gabriel Shapiro, an attorney with Belcher, Smolen & Van Loo LLP. Considering the question isn’t the same as actually delisting – or not delisting – the cryptocurrency, however.

“They have to think — including just from a business perspective but also legal — what kind of precedent they’re setting,” he said. “If they delist one [cryptocurrency] just because a regulator accuses it of being a security, what happens the next time that happens? Have you just given the SEC the right to delist anything from your platform just because [it makes] an accusation?”

Delisting digital assets on that basis may not be great for the exchange’s customers, said Shapiro.

“It’s not an easy decision for [Coinbase] to just delist and, personally, if I were them I don’t think I would delist unless I had something more concrete to point to,” he said. 

The lawyers De quotes are impressed by the strength of the SEC’s suit. But, so far, the “Ripple effect” seems muted — especially if you look at prices of the top two cryptos.

Though regulatory uncertainty is certainly a “thing” with crypto, the fundamental case continues to get better. Here’s what we wrote in the Dec. 23 Weiss Crypto Alert:

M1, the narrowest, most liquid measure of money, has shot up more than 50% just since March – which is when pandemic panic first hit the economy and the markets like a ton of bricks.

Basically, the Federal Reserve is pumping up the American money supply at the fastest pace ever seen.

Here’s how we concluded that issue: “In short: 2021 is going to be a great year for crypto. Happy Holidays!”

Best,

Juan and Bruce