News updates May 19, 2022
1. US Appeals Court Orders SEC to Bring Enforcement Actions to Jury Trials
A U.S. appeals court ruled that the Securities and Exchange Commission (SEC) violated a hedge fund manager's constitutional rights by having an in-house judge try a securities fraud case brought against the individual.
The SEC alleged in 2013 that George Jarkesy Jr. and his firm, Patriot28 LLC, violated federal securities law by misstating his hedge funds' assets. The case was tried before an administrative law judge, rather than before a civil court. These administrative law judges, or in-house judges, may have violated Jarkesy's seventh amendment rights to a jury trial, the 5th Circuit Court of Appeals said in its ruling Wednesday.
In sum, we agree with Petitioners that the SEC proceedings below were unconstitutional. The SEC’s judgment should be vacated for at least two reasons: (1) Petitioners were deprived of their Seventh Amendment right to a civil jury; and (2) Congress unconstitutionally delegated legislative power to the SEC by failing to give the SEC an intelligible principle by which to exercise the delegated power," the decision said.
The ruling remanded the case "for further proceedings," indicating that it was not vacating Jarkesy's conviction entirely.
According to The New York Times, the impact of the case is limited to just SEC cases brought in Texas, Louisiana and Mississippi, and only in cases that do not "involve solely 'public rights.'"
The SEC has taken on a number of enforcement actions in the crypto industry in recent years, bolstering the part of its enforcement division responsible for such cases earlier this month to just over 50 individuals.
Before Wednesday's ruling was announced, SEC Chair Gary Gensler testified before the House Appropriations Committee, arguing his agency needed more resources to continue taking on fraud and other crimes in the sector.
"I wish we had more to be able to dedicate to this," he told lawmakers.
2. Bitcoin price drops under $29K as Walmart, Target stock lose most since 1987
Bitcoin (BTC) headed toward an "interesting" liquidity area on May 18 as United States stock markets opened with a bearish bang.
*BTC price nears "interesting" rematch with lows*
Data from Cointelegraph Markets Pro and TradingView followed BTC/USD as it broke through the $29,000 support after the Wall Street open.
U.S. markets saw a swift reversal of prior gains on the day, with the S&P 500 down 2% and the Nasdaq 100 down 2.3% within the first hour of trading.
The big surprise, however, came from grocery giants Walmart and Target, both of which saw the biggest intraday declines since the weeks prior to the 1987 "Black Monday" market crash.
At the time of writing, WMT was down over 15% in five trading days, while TGT was nearing 25%. Both had come after reported of deteriorating earnings amid a squeeze on consumer spending from inflation.
"Bear market rallies can last weeks or just a few days. The combo Walmart/Target bombs indicate the U.S. consumer might not be as healthy as thought. The 3-day rally could be over," Fred Hickey, editor of The High-Tech Strategist, told Twitter followers on the day.
As standard, BTC declined with the indices to threaten a break below $29,000 toward an area of liquidity which represented the daily closes from last week's drop which had seen spikes below $24,000.
"Looks like a clean breakdown to me. Price action has been choppy but we should at least sweep the lows," popular trader and analyst Nebraskan Gooner tweeted in his latest update
*Lows break and we probably see $22K. Lows hold and we can break back above $30K."*
Cointelegraph contributor Michaël van de Poppe agreed, descrbing the area at around $28,400 as "interesting."
#Bitcoin is making that dropdown and the low has been swept.
An interesting area for me, the next one is around $28.4K. pic.twitter.com/FnEqJ6mz73
*Altcoins risk 90% "standard bear market correction"*
On altcoins, losses began to mount faster as Bitcoin abandoned any short-term bullish signals.
Out of the top ten cryptocurrencies by market cap, Cardano (ADA) and Solana (SOL) were the worst performers, with daily losses near 8%.
Ethereum (ETH) lost $2,000 support and headed towards its lowest levels since the May 12 cross-crypto capitulation.
Altcoins have retraced a lot. But previous bear markets suggest they could go lower," trader and analyst Rekt Capital warned on the day.
"If BTC loses its Macro Range Low, that would confirm more downside in the Crypto market. Which could enable Altcoins to follow their standard Bear Market correction of over -90%."
3. Bitcoin Struggles to Hold Support at $27K-$30K
BTC is testing an important support zone, although long-term momentum remains weak.
Bitcoin (BTC) has traded in a tight range of between $27,000 and $30,000 over the past few days. That's a key support zone for BTC, and it is also the lower bound of a yearlong trading range.
BTC was trading at around $29,000 at press time and is down by 3% over the past 24 hours.
A decisive break below $27,000 could yield further downside targets for BTC, initially toward $17,823. Further, BTC's downward sloping 50-day moving average indicates persistent trend weakness, which could keep sellers active.
Bitcoin faces strong resistance at between $33,000 and $36,000, which could stall an upswing in price. And on the weekly chart, momentum remains negative despite oversold readings. That could increase the risk of a breakdown in price, similar to what occurred in March 2020 and November 2018.
4. USDC Exchange Reserves Start Fall, Dry Powder For Bitcoin?
On-chain data shows the USDC exchange reserves have started to trend downwards recently, a sign that buyers may be exchanging the coin for Bitcoin and other cryptos.
*USDC Reserves On Exchanges Have Fallen Down Over The Past Few Days*
As pointed out by an analyst in a CryptoQuant post, investors may have started to exchange their USD Coin for other cryptos like Bitcoin.
The “USDC exchange reserve” is an indicator that measures the total amount of the stablecoin currently stored in wallets of all exchanges.
When the value of this indicator goes up, it means the supply of the cryptocurrency on exchanges is observing an increase.
Investors usually convert to stablecoins when they want to exit volatile markets like Bitcoin. So, an increase in the reserve shows holders may be leaving BTC.
On the other hand, a downtrend in the metric suggests investors have started to either convert it to other cryptos or withdraw it to personal wallets.
Such a trend suggests that investors may be finding the current Bitcoin prices favorable for re-entry into the market.
This fresh buying from the stablecoin holders can therefore act as dry powder for propelling up BTC and other coins.
As you can see in the above graph, the USDC reserve had been on the rise earlier this month as fear in the market rose up.
However, soon after the price of Bitcoin crashed down below $26k, the USD Coin reserve dropped off as investors exchanged their stablecoins to buy the dip.
This exchange of USDC to other cryptos seems to have continued even after BTC rebounded back above the $30k level again.
*Bitcoin Price*
At the time of writing, BTC’s price is trading around $29.5k, down 1% in the last seven days. Over the past month, the crypto has lost 25% in value.
The below chart shows the trend in the price of the coin over the last five days.
Bitcoin has shown little activity in the past week as the crypto has been stuck in consolidation. Currently, it’s unclear when some real price action will be seen.
5. Crypto Analyst Benjamin Cowen Warns Bitcoin (BTC) Traders Should Be Prepared for More Bear Market Action
Crypto Analyst Benjamin Cowen Warns Bitcoin (BTC) Traders Should Be Prepared for More Bear Market Action
Daily Hodl Staff May 18, 2022
A popular crypto analyst is using a refined technical analysis metric to plot out where Bitcoin (BTC) is headed as the markets try to recover from a rocky few weeks of trading.
In a new strategy session, Benjamin Cowen tells his 741,000 YouTube subscribers he prefers to use Heikin-Ashi candles when analyzing Bitcoin because the metric tells a more comprehensive story about price action by including data from the preceding two candles.
The reason we look at Heikin-Ashi candles is because if you don’t and you just look at normal candles where the color of the candle is only dependent on the open and close, it doesn’t tell the same type of story or narrative that really wants to be told. In an uptrend, you will still see red candles, and in a downtrend, you’ll still see green candles.
Heikin-Ashi candles not only account for the open and close, they also account for the high and the low and they are dependent on the candles that come before them. Because of this, it is a more useful way of measuring the momentum of the market and it helps you sort of cut out the noise of all short-term moves back up to the upside.”
Cowen dives into BTC’s chart behavior over the past several bear cycles and suggests investors could see disappointing numbers until this coming fall.
That’s why I’m saying that people need to be prepared for this bear market to continue dragging on, if history is any indication we recognize that when we’re in a bear market we know that things like the 200-day moving average when they’re starting to hold as resistance, this is a fairly good indicator of in fact a bear market.”
The crypto analyst concludes by highlighting the pattern of back-to-back red candles on 3-month candles over the life of Bitcoin dating back to its inception in 2011.
Let’s go look at Heikin-Ashi candles on the quarterly. Now this one is very interesting because if you look at quarterly Heikin-Ashis, you can see that there’s one period where we had three in a row, one period where we had four, another period where we had four, and then another one where we had two.
So the average, out of all 13, you divide that by four, a little over three is sort of the average on that. So you could argue that the expected quarters where these are going to stay red would be a little over three, meaning that even next quarter could still come in red.
The funny thing is next quarter could be a green quarter but the Heikin-Ashi could still be red just because it’s carried over from the momentum of the prior quarter as well, so you have to remember that.”
At time of writing, Bitcoin is up 1.58% over the last 24 hours and trading for $30,235.
6. Bitcoin Open Interest Nosedives, But All Hope Is Not Lost
Bitcoin open interest has been on a downtrend recently. This is not surprising given that the price of the digital asset had also been declining in recent times. The past week has seen this downtrend mostly driven by movements on the crypto exchange, Binance. Despite this decline, it is still not all bad for bitcoin in terms of open interest.
*Bitcoin Open Interest Falls*
The bitcoin open interest had been on a recovery trend since the December 4th crash. Mostly this has been the result of various recoveries that bitcoin has made ever since then. It had even hit an intraday peak of 282,000 BTC back at the beginning of May, although it would go on to lose a good portion of this when open interest had declined by 35,000 BTC and left the intraday interest on May 14th at 247,000 BTC.
The major factor behind this cannot be pinpointed given that there are a number of things that can cause declines such as this in the open interest. One of these is when traders swiftly close their longs or take profits from their short positions. Mainly, this is triggered by massive liquidations across the market.
It is also worth noting that crypto exchange Binance saw one of the largest falls in open interest in the first two weeks of May. The crypto exchange had seen its open interest grow to 115,000 BTC on May 8th. However, by May 14th, it had lost about $1.5 billion in open interest, which came out to a total of 28,000 BTC being lost. What this shows is that Binance had contributed the largest to the 35,000 BTC decline in open interest.
*Light At The End Of The Tunnel*
While the fall in bitcoin’s open interest can seem like a cause for alarm, it is important to examine where the open interest has been for the past year. Even though the numerous bull rallies that were recorded in the year 2021, bitcoin’s open interest did not grow as much as it has in 2022.
Open interest had peaked just below 260,000 BTC in the fourth quarter of the year before declining once more below 200,000 BTC. 2022 would prove to be a better year as the year had taken off with a massive recovery. This had brought open interest back up above 250,000 BTC once more. Then in May, open interest had reached a new high of 282,000.
So even with the recent downtrend being recorded, the OI continues to trend at a higher low. This puts it at 2021 levels where the market had seen some impressive recoveries. This indicates that even if some traders are pulling out of the market, the number who still have faith in the market remains high even after Thursday’s deleveraging event.
7. Major Korean law firm to sue Do Kwon after UST collapse, local media report
* LKB & Partners has reportedly decided to sue Do Kwon on behalf of investors who lost money in the UST collapse.
* The law firm has also decided to file an attachment order to seize Kwon’s properties.
LKB & Partners, one of the top law firms in South Korea, has decided to sue Terraform Labs founder and CEO Do Kwon after the sudden collapse of TerraUSD (UST) last week, Korean media reported on Wednesday.
LKB will file the case against Kwon, a Korean national, on behalf of ordinary investors to the Seoul Metropolitan Police Agency, according to a report in the Munhwa Ilbo newspaper. Some of LKB's employees may also join the case since they lost money in the UST collapse, the report says.
There are related investors inside the law firm, and we will file a complaint against Kwon at the Financial Investigation Unit of the Seoul Metropolitan Police Agency," Kim Hyeon-Kwon, a partner at LKB, told Munhwa Ilbo.
Besides filing a police complaint, LKB has also decided to file a provisional attachment order of Kwon's properties to seize them in the Public Prosecutors' Office of Seoul Southern District, according to the report.
A separate report from local news agency Yonhap said LKB is also considering suing Daniel Shin, another Terra co-founder.
The Block has attempted to contact Kwon and Shin via Terraform Labs and will update the story should we hear back.
*UST collapse*
The UST algorithmic stablecoin de-pegged sharply last week to levels below 10 cents, far from its target price of $1. It is still trading at that level. Terra's native token Luna also crashed and is currently trading at a fraction of a cent, losing almost all of its value.
The implosions of UST and Luna have led to tens of billions of dollars in losses for investors, both retail and institutional. Korea's financial regulators — the Financial Services Commission (FSC) and the Financial Supervisory Service (FSS) — have reportedly launched "emergency inspections" into local crypto exchanges to enhance investor protection.
Korean politician Yun Chang-Hyun has also reportedly called for a parliamentary hearing on UST to understand the cause of the collapse and measures to protect investors. Chang-Hyun wants Kwon and local crypto exchanges to attend the hearing.
In the wake of the UST chaos, Terraform's in-house legal team has left the company, The Block reported on Tuesday. The Singapore-based firm has turned to outside counsel to assist with legal matters.
8. India Mulls ‘Reverse Charge’ Tax on Foreign Crypto Platforms
The government of India is planning a “reverse charge” on virtual digital asset investment on overseas platforms.
A reverse charge is an indirect tax liability on the recipient of goods or services rather than the supplier.
For an Indian investor procuring services from a domestically unregistered crypto exchange, the goods and services taxation (GST) burden will fall on the receiver.
“If a crypto exchange is based out of India, and is not impacted by GST implication, then the receiver who is based out of India will be liable to pay GST on a reverse charge basis,” a source told Business Today TV.
Reportedly, the percentage of this reverse charge could be 18% based on commissions earned via crypto transactions.
The source added: “The legality of virtual digital assets could be considered under schedule 2 of The Central Goods and Services Act, 2017 which mentions of the activities or transactions to be treated as supply of goods or supply of services.”
India is proposing to amend its goods and services tax (GST) to include cryptocurrencies. While the decision is expected in the next GST council likely this month, investors have already been paying 30% tax on crypto gains since the start of April 1
The source also told Business Today: “[The government] is unlikely to tax crypto on the total value of the transaction, per se. The discussions are at a stage that needs further deliberations.”
*India’s central bank raises concerns but industry divided*
Officials of the Reserve Bank of India (RBI) recently told the Parliamentary Standing Committee on Finance that cryptocurrency might lead to “dollarisation.”
Jaijit Bhattacharya, president of the Centre for Digital Economic Policy Research explained there is a problem with using foreign currency in any economy as the central bank lacks control over the currency in applying monetary policy tools.
Meanwhile, RBI’s hard stance on the crypto sector continues to raise legislative concerns for investors.
The Confederation of Indian Industry (CII) president Sanjiv Bajaj noted in another interview that the sector should be regulated and not banned despite its potential concerns.
“So, our suggestion is to monitor and regulate them, perhaps in a sandbox environment, try them out in a more controlled environment and learn from them, and then decide what makes sense and what doesn’t,” he said.
9. IMF Sanctions: Barrier to Crypto Adoption?
1944 marked the founding of the International Monetary Fund (IMF). About 190 countries in its membership rely on it for exchange rate stabilization. In response to the emergence of cryptocurrencies over a decade ago, the International Monetary Fund (IMF) emphasized that this development can make the financial system of countries porous since the market is not regulated. IMF sanctions
El Salvador suffered IMF sanctions for adopting Bitcoin as a legal tender and making purchases of more Bitcoin during dips. Just a few weeks ago, the Central African Republic (CAR) joined El Salvador in adopting Bitcoin as a legal tender. This action brought a lot of criticism to the government of CAR by the International Monetary Fund and other international institutions.
*The fear of IMF sanctions could impact negatively on the speedy adoption of cryptocurrencies in the following ways:*
* Fear of open support for cryptocurrencies by countries
* Imposition of laws preventing citizens from participating in Crypto activities.
*Fear of Open Support for Cryptocurrencies by Countries*
The membership had 190 countries in total. Due to the fear of sanctions, only a few countries in the membership adopted cryptocurrencies as legal tender. They worried these IMF sanctions would prevent them from accessing international loans during any financial crisis. Different countries that understand the importance of cryptocurrencies in the long term seek this support to align with the position of the International Monetary Fund. This fear reduces cryptocurrency adoption.
*Imposition of Laws Preventing Citizens from Participating in Crypto Activities*
Since the cryptocurrency market is porous, volatile, and unregulated, the International Monetary Fund suggests conducting more studies. Countries that support this stand have access to technical support, loan support, and structural adjustment. It ensures that recipient nations maintain strict monetary policies. It also inspires these governments to make laws that prohibit all forms of cryptocurrency activities by the citizens and businesses within their jurisdiction.
In conclusion, the fears of the International Monetary Fund are valid since they do everything to uphold the mandate that led to its creation due to the world economic crisis orchestrated by the Second World War. However, this directly impacts the adoption of Cryptocurrency in some countries negatively.
10. Bank of England's Cunliffe Warns Crypto Will See Tough Times as Federal Reserve Tightens Financial Conditions
Bank of England’s deputy governor for financial stability, Sir Jon Cunliffe, has warned of hard times ahead for cryptocurrency investors as the Federal Reserve and other central banks tighten monetary policy.
*Bank of England’s Executive Warns About Crypto*
Sir Jon Cunliffe, deputy governor for financial stability at the Bank of England (BOE), had a warning for crypto investors at a Wall Street Journal conference Tuesday, Reuters reported.
The Bank of England executive cautioned that crypto investors should expect more difficult times ahead. He explained that as the Federal Reserve and central banks around the world tighten financial conditions, investors will be more attracted to safer assets.
Replying to a question about whether rising interest rates would ramp up pressure on cryptocurrencies, Cunliffe was quoted as saying:
Federal Reserve Chairman Jay Powell said last week that the Fed will continue tightening monetary policy until it sees “clear and convincing” evidence that inflation is falling to the target rate of 2%.
Cunliffe also discussed another factor affecting the crypto market. Noting the Russia-Ukraine war is prompting investors to move funds into safer assets, he advised:
In October, Cunliffe warned that crypto could collapse, citing its lack of intrinsic value and extreme price volatility. He then urged regulators to urgently establish rules for crypto assets.
The Bank of England also issued a report in October stating that crypto assets pose “limited” direct risks to the financial stability of the U.K.’s financial system. “Cryptoasset and associated markets and services continue to grow and to develop rapidly. Such assets are becoming increasingly integrated into the financial system. The FPC [Bank of England’s Financial Policy Committee] judges that direct risks to the stability of the U.K. financial system from cryptoassets are currently limited.”
