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Bitcoin was trading lower on Friday, ending the week around $39,000. Its 2% slump in the last 24 hours may reflect some profit-taking—following a recent 35% surge.
The news out of Europe was both positive and unsettling for the cryptocurrency.
And Congress may be getting closer to regulating the crypto industry.
A bill introduced in the House this week would create statutory definitions of digital assets, establish new reporting requirements, authorize securities regulators to oversee the market, and clarify that cryptocurrencies and stablecoins are not “legal tender.”
The bill would also authorize the Federal Reserve to issue a digital version of the dollar—a big step for a central-bank digital currency that has been a priority for some lawmakers and policy makers. China started issuing a digital version of its currency last year, and other central banks are well on their way.
“Digital assets and blockchain technology hold great promise, and it is clear that assets like Bitcoin and Ether are here to stay,” said Rep. Don Beyer (D-Virginia), the bill’s sponsor, in a statement. “Unfortunately, the current digital asset market structure and regulatory framework is ambiguous and dangerous for investors and consumers.”
The market’s reaction to this may be mixed. While heavy-handed regulation could have a chilling effect, it also could help legitimize crypto as a mainstream asset class. That, in turn, could create a wider investor base among vast pools of institutional assets run by pension funds, endowments, and other large investors.
That appears to be underway now in Germany. The country will allow institutional funds to own up to 20% of their assets in Bitcoin and other crypto products, according to a report in Bloomberg.
The funds, including insurance and pension portfolios, manage $1.8 trillion euros, or about $2.1 trillion, in assets. While they’re generally conservatively run, they may be eager to put a slug in Bitcoin or other cryptocurrencies. Even at 5% of their assets, it would be more than $100 billion in crypto purchases.
At the same time, the world’s largest crypto exchange, Binance, is facing new regulatory pressures and is pulling its futures products out of some European markets.
Binance on Friday said it will “wind down” futures and derivatives offerings in Germany, Italy, and the Netherlands. Traders in these countries won’t be able to open new futures or derivatives accounts, and they’ll have 90 days to close their open positions, Binance said.
According to a Wall Street Journal report, U.S. investors are also trading crypto derivatives on foreign exchanges based abroad, avoiding U.S. regulatory requirements.
Binance leads all exchanges in open interest futures volume, according to Fundstrat, a crypto research firm. “This is yet another step taken by the company to work with local authorities following a global backlash against the firm for its general ambivalence towards financial regulation,” Fundstrat said in a note.
Binance faces other trouble in Europe and Asia. Italian regulators recently warned the exchange about providing unauthorized investment services. The exchange is also facing a class-action lawsuit in Italy related to futures trading.
In an email to Barron’s, the company said that “Binance.com does not operate out of Italy. This has no direct impact on the services provided on Binance.com.”
Malaysia is also cracking down: Authorities ordered Binance to shut down its website and mobile app on Friday, accusing the company of “illegally operating a Digital Asset Exchange.” Malaysia has reprimanded Binance before, but it now appears to be closing the door on the exchange’s activities.
“Binance.com does not operate out of Malaysia,” the company said, adding, “we take our compliance obligations very seriously. We are actively keeping abreast of changing policies, rules and laws in this new space.”
Meanwhile, investor interest in crypto only appears to be accelerating. According to a new report from crypto.com, the number of global crypto users hit 221 million in June, doubling over the last four months. While Bitcoin drove much of the market’s growth in January and February, “altcoin adoption in May led to a massive surge in crypto users,” the report said.
That may be great for crypto demand, but it’s one more reason for the regulatory posse to keep riding in.
Write to Daren Fonda at daren.fonda@barrons.com