Cryptocurrency Analyst
Summary: As the US cracks down on crypto, Hong Kong takes a more positive stance on crypto, following its plan to evolve into a crypto hub, starting by allowing retail investors to trade certain cryptocurrencies. The opposing views on crypto regulation stress that the present regulatory course is somewhat zero-sum, taking one step forward, followed by one step back.
In the past few weeks, the Securities and Exchange Commission (SEC) in the US has initiated a crackdown on crypto intermediaries, including highly regulated US-based entities such as Kraken and Paxos. At the outset, the agency forced crypto exchange Kraken to shut down its staking service and its intention to file a lawsuit against stablecoin issuer Paxos over its Binance-branded stablecoin was disclosed.
Not only US-regulated entities have caught the attention of the SEC. On Thursday, the agency charged the offshore company Terraform Labs and its foreign founder by the name Do Kwon with fraud due to its doomed cryptocurrency and its associated algorithmic stablecoin known as Terra and UST, respectively. In the span of a few days, both cryptocurrencies blew up as they entered a death spiral last year, wiping out a combined $58bn market capitalization at the immense expense of investors worldwide. The SEC alleges that Terraform Labs and Do Kwon misled investors about the stability of the stablecoin.
In 2018, Hong Kong introduced legislation forbidding exchanges and intermediaries from offering crypto trading to retail investors. However, relative to the recent strict approach by the SEC, Hong Kong’s equivalent agency namely the Securities and Futures Commission (SFC) has recently turned more crypto-friendly after Hong Kong in October last year stressed its ambition to attract the crypto industry to restore its hub as a financial center.
On Monday, the first confirmation of a new course on crypto in Hong Kong became evident, as the SFC proposed new rules for crypto intermediaries, allowing them to operate in the country more freely if they obtain a license. The license is planned to come with regulatory oversight and obligations such as capital requirements, due diligence on tokens, and limits to clients’ exposure to ensure it is within their risk profile. These rules do not appear to be out of the ordinary compared to regular bank regulation. Most prominently, the rules are set to allow retail to once more trade certain large cryptocurrencies, likely at least Bitcoin and Ethereum. This is nothing but positive for the crypto market, as it allows for not only more adoption but crypto innovation too in Asia.
In view of the more negative regulatory sentiment to crypto in the US relative to Hong Kong, the crypto market continues to stay in a zero-sum environment, as it appears that the market altogether does not move in any direction on regulatory matters. There is surely made positive progress in some areas and countries, but it is rather offset by negative trends among other areas and countries. In our view, this regulatory zero-sum environment is not likely to change for the better in the foreseeable future, as countries are yet to figure out by what means they should regulate crypto. This implies that the regulatory journey for crypto is set to continue to be volatile with negative news one week and positive ones the next.
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As US economic slowdown hints at a shift away from exceptionalism, USD faces downside with looming Fed cuts. AUD and NZD set to outperform as their rate cuts lag. JPY gains on carry unwind bets and BOJ pivot.
Amid AI and obesity drug excitement, equities see varied prospects: neutral on overvalued US stocks, negative on Japan due to JPY risks, positive on Europe. European defence stocks gain appeal.
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