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In This Issue:
BUSD Is Next
Bitcoin Thoughts And Analysis
Altcoin Charts
Circle Snitched
Adam Back and Robert Kiyosaki Are Insanely Bullish
An Alternative POV On ETH Staking
The SEC Will Attack Custodians Next
BUSD Is Next
The US regulators' ongoing battle against the crypto industry has intensified as they turn their attention to BUSD, Binance's dollar-pegged stablecoin. This move, coupled with previous attacks, has forced the industry into a defensive position. The $16 billion BUSD stablecoin, launched in 2019, has been approved and regulated by the New York State Department of Financial Services (NYDFS) but has now been caught in the US regulatory warpath.
Binance, the world's largest cryptocurrency exchange, issues BUSD tokens in partnership with Paxos, a fully regulated entity in the United States. The stablecoin is pegged to the US dollar on a 1:1 basis and provides users with a stable and secure way of holding digital assets. BUSD has gained significant traction in recent years and is now ranked seventh in market capitalization.
Yesterday, Paxos announced that it would stop minting BUSD tokens from February 21, citing "several unresolved issues related to Paxos' oversight of its relationship with Binance in regard to Paxos-issued BUSD." According to an investor alert issued by NYDSF, the regulator is reviewing the operations of the stablecoin, which has led to the cessation of its issuance.
To add to the pressure, the SEC has issued Paxos a Wells Notice stating that BUSD is an unregistered security, potentially causing mass confusion. The notice has led to speculation that the SEC is looking to target BUSD, as it believes that the stablecoin may violate US securities laws. This is despite the fact that BUSD has been regulated by the NYDFS and there is no expectation of profit in a stablecoin.
This feels like the opening salvo in a proxy war against Binance, using the stablecoin to kneecap the foreign exchange without having to attack directly.
Please keep in mind that I am not a securities expert and this is not advice. I will differ to people with more knowledge than myself, some who support the idea that stable coins are securities.
Regardless, it is evident that the SEC has blundered its oversight of crypto. Gary Gensler, the SEC Chairman, is known to be tough on the cryptocurrency industry and has made it his mission to increase oversight of the sector. He is stopping at nothing to bruise, break, and beat down the industry.
In fairness, outdated security laws do extend beyond the Howey Test, and just because there isn't an expectation of profit, doesn’t mean the SEC can’t (wrongly or unfairly) label something a security. They have quite a bit of flexibility.
In response to the news, CZ stated that if BUSD is ruled as a security, it will have profound impacts on the crypto industry's development. This is obviously true. However, he remains confident in Binance's ability to adapt to changing regulations.
“Binance will continue to support BUSD for the foreseeable future. We do foresee users migrating to other stablecoins over time. And we will make product adjustments accordingly. eg, move away from using BUSD as the main pair for trading, etc.”
You may remember that a few months ago, Binance forced conversion of USDC to BUSD on their platform. This seems like retaliation from the US regulator, who clearly favors USDC.
The recent actions of the SEC raise the question of whether they are just going after lower-hanging fruit, such as Kraken's staking service and Paxos's BUSD, or if they plan to work their way up the chain. The SEC has a good idea of who will fight back and how well they will be able to do so, which likely is guiding where they strike. The industry will have to wait for the official lawsuit to be announced.
Nonetheless, the industry's overall reaction to the SEC's actions has been mixed, with some expressing concern about the impact on innovation and the potential for stifling growth in the sector. Others believe that increased regulation is necessary to protect investors and ensure the industry's long-term success.
For now, BUSD has only minimally depegged from high volatility, showing no significant signs of systemic risk. However, the outcome of the SEC's review will have significant implications for the future of the stablecoin and the wider cryptocurrency industry. It remains to be seen whether BUSD will be classified as a security, but one thing is certain: the regulatory environment for the cryptocurrency industry has become a war zone.
Bitcoin Thoughts And Analysis
I wrote a thorough Bitcoin analysis yesterday, which somehow was deleted from the final draft of the newsletter. Oops!
Not much has changed here. The key support is $21,473, which was tested almost to the dollar last week and was slightly broken with a wick already this week. As long as that holds, I am still looking for the idea drawn in blue.
$25,212 remains the key resistance. A break of this level would be the first higher high in market structure since the all time high. This would end the bear case, from a technical perspective.
The 50 and 200 MAs still loom ahead, after completing their “death cross.”
We can get a closer look at the interaction between price and support at $21,473 by zooming into the daily chart. while the pattern does look a bit toppy (insert a picture of the Bart Simpson for a Bart pattern), this still has not confirmed any sort of bearish reversal.
That said, this will eventually go back to oversold, as it makes the trip from overbought. We want to see that happen with sideways price action, rather than downward pressure.
We have confirmed bullish divergence coming out of oversold RSI on the 4 and 6 hour charts. We also have bullish divergence that is not oversold on the 12 hour.
These are my favorite signals, especially after seeing price bounce from support.
Things look decent, but we need to be careful around CPI.
Legacy Markets
European stocks increased while Wall Street equity futures were slightly changed ahead of US inflation data. The Stoxx 600 index rose 0.4% on the back of gains in European telecoms and travel and leisure shares. Vodafone and TUI stocks rose following recent developments. Futures for the S&P 500 and the tech-heavy Nasdaq 100 steadied after the underlying indexes added more than 1% on Monday. The yen increased against most G10 currencies following the formal nomination of Kazuo Ueda as the next Bank of Japan governor. Traders have increased bets that the BOJ’s yield-curve control and negative-rate policies may be abolished under Ueda’s leadership.
CPI data comes in at 8:30 AM EST.
Key events:
US CPI, New York Fed President John Williams gives the keynote speech at New York Bankers Association event Tuesday
US retail sales, UK CPI Wednesday
US jobless claims, Australia unemployment, Cleveland Fed President Loretta Mester speaks at Global Interdependence Center event Thursday
France CPI, Russia GDP Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.4% as of 10:13 a.m. London time
S&P 500 futures rose 0.1%
Nasdaq 100 futures rose 0.2%
Futures on the Dow Jones Industrial Average were little changed
The MSCI Asia Pacific Index rose 0.6%
The MSCI Emerging Markets Index rose 0.2%
Currencies
The Bloomberg Dollar Spot Index fell 0.2%
The euro rose 0.3% to $1.0758
The Japanese yen rose 0.2% to 132.17 per dollar
The offshore yuan was little changed at 6.8210 per dollar
The British pound rose 0.5% to $1.2200
Cryptocurrencies
Bitcoin rose 0.9% to $21,826.92
Ether rose 1.8% to $1,513.11
Bonds
The yield on 10-year Treasuries was little changed at 3.70%
Germany’s 10-year yield declined one basis point to 2.36%
Britain’s 10-year yield advanced two basis points to 3.42%
Commodities
Brent crude fell 0.9% to $85.80 a barrel
Spot gold rose 0.4% to $1,861.31 an ounce
Circle Snitched
To some extent, it is regrettable that this story has to be reported. However, if we had been more transparent in situations like FTX, the cryptocurrency sector would be better off. According to Bloomberg, Circle lodged a complaint with the New York State Department of Financial Services last year, claiming that Binance did not store enough cryptocurrency in reserves to support the tokens issued. It is difficult to determine the intentions behind this decision or whether any discussions were held before the authorities were alerted. Regardless, the situation has already transpired, and even if Circle has strong relationships with regulators, it is unlikely to be immune to the SEC's oversight. The SEC would likely relish the opportunity to see us pit against one another. This situation may be related to Binance's announcement of BUSD auto-conversion last year.
Stablecoins work best when they are supported by all platforms and not isolated due to politics.
Adam Back and Robert Kiyosaki Are Insanely Bullish
It is difficult to take any predictions seriously for various reasons, but to lighten the mood, here are a couple worth sharing. The first is from Robert Kiyosaki, an American entrepreneur, businessman, and author, best known for his book "Rich Dad, Poor Dad." To say that Robert's predictions are aggressive would be an understatement. Nonetheless, this is what he said:
Up next is Adam Back, the CEO of Blockstream and the inventor of Hashcash. He is a long-time Bitcoin investor and is considered a pioneer alongside the names of Hal Finney, David Chaum, and Wei Dei. Adam's reasoning stems from this idea, "Bitcoin 2x's per year on average." It checks: the decade Jan 2013 - Dec 2022 #bitcoin went up 2.036x/year (1200x in a decade). If that continues, we'll cross $10mil/BTC and $200 tril market cap by the end of the next two halvenings, about 9 years.
Adam Back is bullish.
However, take these ideas with a grain of salt. For Bitcoin to reach such heights, it would likely accompany systematic global failures of different monetary systems. Ideally, we would see Bitcoin rise without the world burning.
An Alternative POV On ETH Staking
After China banned Bitcoin mining, the market initially reacted by dumping, but it was later agreed that the ban would lead to further decentralization of mining. Although much of the hash power migrated to the US, the move was beneficial for Bitcoin in the end. With Kraken going offline as a staking provider, Ethereum stakers are now left with decentralized options such as Lido or Rocket Pool. The Lido token has experienced an increase in demand, suggesting that investors are anticipating an accelerated future growth. While staking-as-a-service has always been the convenient choice, it came with the risk of centralization. Now, decentralized options must step up and make their services more user-friendly. The SEC may unintentionally be aiding in decentralization.
The SEC Will Attack Custodians Next
The United States Securities and Exchange Commission (SEC) is reportedly planning to propose rule changes that could impact what services crypto firms can offer their clients. According to a report, the SEC is working on a draft proposal that would make it difficult for crypto firms to hold digital assets on their client’s behalf as “qualified custodians.” If approved, the proposal would affect hedge funds, private equity firms, and pension funds that work alongside crypto firms. A five-member SEC panel will vote on Feb. 15 on whether the proposal proceeds to the next stage, with a majority vote needed for the rest of the SEC to vote on it.
The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.