News updates June 10, 2022
1. Bitcoin (BTC) Slips In Minutes After Steaming-Hot U.S. Inflation. Bitcoin (BTC) slipped on Friday after U.S. CPI data showed inflation was nowhere near cooling.
BTC fell 1.5% in minutes after the reading, which showed that the U.S. consumer price index (CPI) expanded in May, in contrast to expectations for a contraction.
CPI increased by 8.6% year-on-year in May, compared with a 8.3% increase in April, a report from the Department of Labor showed. Markets were expecting a reading of 8.1%.
BTC is now trading below $30,000, with the potential to fall even further. A worst-case scenario predicts the token could fall as low as $15,000 in the short term.
High U.S. inflation now points towards sharper interest rate hikes by the Federal Reserve, spelling more declines for risk-driven markets.
2. U.S. Treasury Secretary Janet Yellen Warns of Having Crypto In Retirement Plans
Alarge number of financial companies including giants like Fidelity have been working to offer crypto exposure in the 401 (k) retirement plans. U.S. Treasury Secretary Janet Yellen has issued a strong warning on this matter and has asked Congress to intervene.
Yellen said that cryptos become a “very risky” choice as part of the retirement plans for average savers. Speaking at an event organized by the New York Times on Thursday, June 9, Yellen said:
Yellen’s response particularly came when asked about Fidelity Investments’ plan of getting crypto exposure to retirement plans. Not only Yellen but even the U.S. Labour Department has objected to this.
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The Treasury Secretary further added that it would be better if Congress regulates which assets to include in tax-favored retirement vehicles. Speaking of her view regarding the Congressional action, Yellen said: “I’m not saying I recommend it, but that to my mind would be a reasonable thing”.
Although Gemini has rejected the allegations, the question is whether we have sufficient protection and security standards to deal with such thefts, especially when someone’s retirement funds are involved.
3. Yellen doubts crypto’s place in 401(k), says Congress could regulate
A head of the Treasury would not recommend investing the retirement money into digital assets “to most people.”
The Secretary of the United States Treasury, Janet Yellen, weighed in on including cryptocurrencies in retirement plans, calling them a very risky investment that should be regulated by Congress.
During an event organized by the New York Times in Washington on June 9, Yellen shared her opinion on the pioneer attempt to include crypto in retirement plans undertaken by Fidelity Investments:
It’s not something that I would recommend to most people who are saving for their retirement. To me it’s very risky investment.”
The discussion around digital currencies in 401(k) plans saw the participation of the Department of Labor, and senators Elizabeth Warren, Tommy Tuberville and Cynthia Lummis.
Yellen went as far as to say that Congress could regulate the type of assets that can be included in retirement programs:
The last statement is important in the context of a legislative uncertainty that has been following the topic of crypto as a retirement investment since the very beginning. 401(k) investments are subject to the Employee Retirement Income Security Act of 1974. It doesn’t specify which asset classes can or cannot be included in a 401(k), but obliges fiduciaries to “show the care, skill, prudence and diligence that a prudent person would exercise.”
*Crypto 401(k): Sound financial planning or gambling with the future?*
In April, Fidelity announced that it would allow 401(k) retirement saving account holders to directly invest in Bitcoin (BTC). The United States Department of Labor (DOL) responded with a compliance report, threatening legal action, while senators Elizabeth Warren of Massachusetts and Tina Smith of Minnesota requested the firm to provide answers on how they are planning to address risks laid out by the DOL.
Meanwhile, Senator Tommy Tuberville from Alabama has unveiled a “Financial Freedom Act” to allow investors to add cryptocurrency to their 401(k) retirement savings plan and Wyoming Senator Cynthia Lummis teased the legalization of crypto in 401(k)’s as a part of her long-anticipated crypto bill.
4. SEC court win over Terraform and Do Kwon opens door for UST investigation, class actions
* Terraform Labs has lost its appeal against the Securities and Exchange Commission, meaning the firm is obligated to respond to the SEC’s subpoenas.
* The decision is an important step in establishing the jurisdiction of US regulators and courts over the firm, especially as reports emerge that the SEC is investigating the collapse of stablecoin TerraUSD.
Terraform Labs’ court loss over Mirror Protocol opens the doors for greater action on the collapse of stablecoin TerraUSD.
Yesterday, the Second Circuit Court rejected Terraform Labs’ appeal against the Securities and Exchange Commission, upholding an earlier decision from the Southern District of New York. The SEC served founder Do Kwon with a subpoena as he prepared to go onstage to speak at Messari’s MainNet event in Manhattan back in November.
In the attempted appeal, Kwon’s lawyers argued that the SEC does not have jurisdiction over Kwon and Terraform Labs, both based in South Korea (though Terraform is registered in Singapore). Kwon had promulgated the claim that the SEC had no jurisdiction back in December. His attorneys also objected to the procedure of serving Kwon directly rather than his lawyers.
In its response to the decision, the SEC noted that the court had found Terraform's "'purposeful and extensive U.S. contacts' such as promoting to US investors, employing US-based personnel, and contracting with US-based entities" as the basis for the determination that a base in South Korea does not insulate the firm from US accountability.
"I find that there is specific personal jurisdiction with respect to both Kwon and Terraform Labs because they purposefully availed themselves of the privilege of doing business in the United States," wrote the judge in the initial district court decision. "There are employees in the United States, including the general counsel, which I think is telling."
The case has major ramifications, both for Mirror Protocol, which allowed users to trade tokens whose prices mirrored US stocks, and for the broader network of connected projects. Most prominently that includes TerraUSD (UST), whose dramatic crash early in May wiped out over $40 billion in value and has shaken the whole crypto ecosystem.
In the lead-up to the final decision, David Shargel, a partner at law firm Bracewell, told The Block: “Whatever the Second Circuit decides will either encourage a class-action lawsuit in the United States or really throw some water on plaintiffs’ lawyers even thinking about it.”
Consequently, the Second Circuit’s establishment of jurisdiction over Terraform in the case of Mirror has ramifications both for further legal action from US authorities, and potential class actions from private citizens.
“As the Second Circuit made clear, courts will find jurisdiction, including over foreign persons and issuers, where the US capital markets are accessed, tokens are promoted to US investors, and promoters facilitate secondary trading in the US,” Attorney Philip Moustakis, who left the SEC to join Seward & Kissel’s blockchain and cryptocurrency practice, told The Block in an email.
On June 9, South Korean news outlet JBTC reported that the SEC was investigating some of UST’s lead designers, as well as suspected money laundering by Do Kwon. Citing an unnamed source, Bloomberg’s Matt Robinson also wrote that the SEC had begun a probe into the UST crash.
“I don’t see how the SEC or CFTC could not investigate the ashes of UST and Luna as well as other stablecoins and their issuers,” wrote Moustakis. “In fact, I would expect some coordination between the two agencies in this regard.”
The SEC had not responded to a request for comment as of publication time. The agency generally does not comment on investigations.
5. Bitcoin Weekly Forecast: There’s a BTC price crash looming
* Bitcoin price intraday volatility seems to have dried up as it hovers around the $30,000 psychological level.
* From a macro perspective, the bearish trend persists and explores the possibility of a crash to $11,865.
* The bearish thesis will face invalidation if BTC produces a daily candlestick close above $52,000.
Bitcoin price is at a point in its journey through the bear market where investors are split into camps that are expecting a relief rally, a continuation of the crash and a full-blown bull rally. Interestingly, none of the aforementioned theses is wrong per se.
*Bitcoin price and macro bearishness*
Bitcoin price has broken out of the bear flag pattern formed between November 8, 2021, and March 28, 2022. This technical formation contains two distinctive parts that serve as identifiers - flagpole and flag.
Since its all-time high at $69,000 BTC has crashed 61% to create the flagpole. The consolidation that followed this sudden nosedive was in the form of higher highs and higher lows, known as the flag.
On May 5, Bitcoin produced a daily candlestick close below $37,660, indicating a breakout. The target for this technical pattern is obtained by adding the flagpole’s height to the breakout point, which reveals a target of $17,803.
So far, BTC has fallen 22% of the way to its target and is currently bouncing off the $29,563 support level.
Additionally, the weekly chart shown below contains the separate volume profiles for 2020, 2021, and 2022. But the most fascinating data point is that barely any volume was traded as Bitcoin price rallied 556% between September 7, 2020, and April 12, 2021.
This sudden move created a void in volume that currently extends from between $11,891 and $29,424. Often, such inefficiencies in volume profiles are eventually filled as the underlying asset’s price reverses to the mean.
Bitcoin price has recently tagged the upper end of this void and is consolidating above it. A breakdown of this level, whenever it happens, will result in a crash to fill the aforementioned inefficiency.
However, a closer observation reveals that there seems to be a support level at $19,252, where the volume profile bumps out a little. Interestingly, the bear flag target is a few thousand dollars away from this level, reinforcing this zone as a potential downside target.
If the selling pressure is heavy, however, the bleed could extend to $11,891, bringing the total loss to 60% from the current level.
As reported earlier, the $19,252 level is significant to Bitcoin price not just from the volume profile thesis but for other reasons too. Since multiple scenarios are projecting a crash to the same level, investors can speculate that a macro bottom could form here.
Another possibility investors need to consider is that a relief rally could take Bitcoin price to $35,000 initially, before a sudden crash to $19,252 or $11,898 begins.
That said, if Bitcoin price experiences massive buying pressure that pushes it to produce a weekly candlestick close above $52,000, it will create a higher high and invalidate the bearish thesis.
Such a development could see sidelined buyers step in to propel Bitcoin price to $60,000 or higher.
6. The metaverse will empower human beings,’ declares Qatar Airways
Qatar Airways announced Tuesday that it had launched its first metaverse experience, QVerse. This virtual reality platform allows interested parties can virtually visit and navigate the Premium Check-in area at the International Airport of Hamad (HIA).
According to the company’s statements to Cointelegraph, however, QVerse is merely the company’s first foray into the Metaverse. The company said that it intends to expand its virtual environment initiatives and believes that the metaverse is part of the future of human relations.
7. IMF says CBDC designs should focus on environmental-friendliness
The IMF study titled “Digital Currencies and Energy Consumption” has examined the energy consumed by cryptocurrency assets depending on their design to assess the ideal way of creating a central bank digital currency (CBDC).
The IMF study has mainly focused on the groundwork for policy issues surrounding the effects of digital currencies on the environment. The IMF has also recommended that networks switch from a proof-of-work consensus to distributed ledger technologies that do not damage the environment.
