First Mover Asia: Bitcoin Celebrates the New Year With Old Pricing, Holds Steady at $16.7K

Good morning. Here’s what’s happening:

Prices: Bitcoin inches up but remains in its recent, narrow range; other major cryptos see green.

Insights: Crypto exchange tokens are responding more to news developments than what regulators might be contemplating.

Prices

Bitcoin Celebrates the New Year With Old Pricing

By James Rubin

New year. Old story.

As investors savored the waning hours of the extended New Year's holiday weekend, bitcoin plugged along in the same narrow range it occupied for the last 15 days of 2022.

The largest cryptocurrency by market capitalization was changing hands at about $16,700, up 0.6% over the past 24 hours amid light trading typical for the holiday season. BTC has been hovering between $16,400 and $17,000 since mid-December when fears about inflation and sharp recession rekindled.

Whether crypto prices rebound in 2023, and if so, when, is uncertain, although analysts seem unified in the belief that market misery won't exceed the torment of 2022 when crypto exchange giant FTX's November failure capped a year of industry shipwrecks.

"The crypto community won't be sad to see the back of 2022 and who can blame them?" quipped Craig Erlam, senior analyst at foreign exchange market maker Oanda, in recent email. "Who knows what's to come in 2023 but at the very least, they'll be hoping to put the FTX scandal behind them and focus once more on innovation and adoption."

Yet Erlam also noted warily: "That may be a lot to ask in the short term, especially if other market factors aren't favourable. No doubt it will be another intriguing year for the space."

Ether followed BTC's Monday path to stick in its own two-week range between $1,150 and $1,230. The second largest crypto by market value was recently trading at about $1,215, a 1.3% gain from Sunday, same time. Other major cryptos spent the day largely in the green with XRP, the token of the XRP open source public blockchain, XRP Ledger, and MATIC, the token of layer 2 platform Polygon Network, rising more than 4% and 3%, respectively.

SOL, the native cryptocurrency of embattled blockchain platform Solana, continued a surge that began last week when Ethereum co-founder Vitalik Buterin tweeted positively about the protocol. SOL was recently up 13%, although at just above $11, it has lost 93% of its value from a year ago when it was trading over $176 – a result of its entanglement with the imploded Terra ecosystem and FTX.

The CoinDesk Market Index (CDI), an index measuring cryptos' performance, recently jumped 1.50%.

Equity indexes closed their own year of distress fittingly with the Nasdaq, the S&P 500 and Dow Jones Industrial Average all falling slightly. The tech-heavy Nasdaq plummeted a whopping 33%, while the S&P, which has a robust technology component, plunged nearly 20% as markets flinched from the heavy body blows of macroeconomic uncertainty, socio-political unrest and rising prices.

Meanwhile, FTX ripples continued to widen with a co-founder of crypto exchange Gemini accusing Digital Currency Group CEO Barry Silbert of “bad faith stall tactics” as their respective companies tangle over a business disagreement precipitated by FTX’s multi-billion-dollar implosion late last year.

Cameron Winklevoss blasted Silbert in an open letter posted to Twitter, alleging crypto broker Genesis Global Capital and its parent company, DCG, owe Gemini’s clients $900 million. The letter alleges Gemini has awaited word on a repayment agreement for six weeks to no avail. DCG is also CoinDesk’s parent company.

Silbert responded, tweeting that DCG delivered to Genesis and Gemini’s advisers a proposal on Dec. 29, 2022, and has not had any response.

Looking ahead to the wider landscape, Oanda's Erlam wrote that much "now hangs on the economic data and how companies plan to adapt to a potentially impending recession."

"The data towards the back end of 2022 wasn't as promising as hoped and the communication from the Fed and others has remained more hawkish than investors would like," he wrote.

Insights

Exchange Tokens Don't Care What the SEC Might Do

By Sam Reynolds

FTX’s FTT exchange token is a security.

That’s the uncontested comment the Securities and Exchange (SEC) made in its complaint against former Alameda Research executive Caroline Ellison in the last days of 2022.

Since then, many exchange tokens are up. CoinGecko data shows that during the last week, OKX’s OKB token has risen a staggering 30%; BNB has posted 1.5% gains; and KuCoin’s KCS is up 1.7%. Huobi’s HT is down 4%, and Crypto.com’s Cronos has dropped4.2%, although these are both pretty moderate for digital asset markets.

For years, the market has treated exchange tokens like a security by any other name.

Sure, executives at exchanges would be quick to tell you that these tokens have many characteristics that are unlike a traditional investment contract – namely utility, such as discounts for large holders – but the price of exchange tokens tends to follow the news. Indonesia’s Tokocrypto exchange token rallied when it was leaked out that Binance was going to buy the exchange; Binance’s BNB token drops on bad news; FTX’s FTT fell precipitously in early November, going from $22.50 to $1.50 in a week, after CoinDesk broke the fateful news about Alameda’s balance sheet.

"If demand for trading on the FTX platform increased, demand for the FTT token could increase, such that any price increase in FTT would benefit holders of FTT equally and in direct proportion to their FTT holdings," the SEC wrote in its December complaint. "The large allocation of tokens to FTX incentivized the FTX management team to take steps to attract more users onto the trading platform and, therefore, increase demand for, and increase the trading price of, the FTT token."

Case law favors SEC

All these claims the SEC is making in its complaint are going uncontested. They aren’t being tested in court in the usual adversarial fashion because Ellison is agreeing with all of them by virtue of her desire to admit guilt and settle.

And thus, now the SEC has case law on its side to go after the other half-dozen prominent exchange tokens on the market. Exchanges might say that this isn’t an issue because in prior cases of the SEC calling tokens a security, the defendants have argued that U.S. laws shouldn’t apply to them as they are by all accounts offshore, not specifically marketing to those residing stateside, and run by non-Americans.

But FTX was also offshore, and had measures present to block U.S. residents from opening accounts on the platform (instead directing them to FTX U.S.). Yet millions of Americans lost money on FTX, so this argument isn’t going to work.

But could it be that the market is already pricing in a hostile regulator?

“SEC Chair Gary Gensler has been emphatic about his views that generally crypto products should be regulated as securities,” Ross Feingold, special counsel at Taipei-based Titan Attorneys at Law, told CoinDesk. “Numerous recent enforcement actions by the SEC show its willingness to bring charges against crypto exchanges, those offering new crypto, and cryptocurrency spokespersons.”

Feingold thinks that for the SEC, the case is easy to make, given the criteria the Howey Test has.

“One could simply swap out the name of the crypto product with the name of a company's shares or some other investment products that we usually think of as security; for the SEC it doesn't matter, as it is applying the traditional test,” Feingold said.

Foreign regulators actions?

One wildcard might be if other regulators worldwide follow suit and target exchange tokens, too. Regulators in most of Asia, for instance, have historically approached crypto with a light touch. Binance and FTX aren’t blocked off like they are in the U.S. But this could change.

In Taiwan, for instance, retail investors lost an estimated $500 million with the collapse of FTX. Indonesia, where crypto traders outnumber stock traders, is already planning stricter regulation post-FTX with its Financial Service Authority given a mandate to come up with a better regulatory framework to protect investors.

“An interesting aspect of the SEC's willingness (or eagerness) to treat crypto as a security is that it gives regulators elsewhere, including here in Asia, cover to simply follow the SEC's lead, rather than make a determination on their own whether crypto is a security or issuing crypto specific public offering or trading regulations,” Feingold said.

The market might have already priced in a hostile SEC, but let’s see if it has accounted for other regulators simply following the Commission's lead.