Commentary from the Desk: October 12, 2022

This week, the world’s regulators further ramp up efforts to enforce and propose new rules for regulating crypto, while the macro front closely follows Fed moves and the September jobs report.

The Macro Front

• The September jobs report came back stronger than expected:
  • The U.S. created 263k jobs during the month, down from 315k in August;
  • Unemployment, back to pre-Covid levels, fell from 3.7% to 3.5%;
  • Average hourly earnings climbed 5% from a year earlier, roughly matching economists’ expectations but slowing down slightly from the prior annual reading. Wages had climbed 5.2%in the year through August.

In a sensible world, these numbers would be good for asset prices. However, in the current environment, it gives the Fed room to be particularly aggressive.

• As it stands, a Fed pivot is seemingly off the table for the time being:
  • The market is expecting a 75bp hike in November, 50bp in December, and 25 basis points in February;
  • September CPI is set to release this Thursday, and will likely be more significant than last Friday’s jobs report.

The Regulatory Front

Crypto is commonly referred to as the “Wild West” by regulators like SEC Chairman Gary Gensler. We strongly support an approach that emphasizes proper, yet fair and well-thought-out regulation that does not stifle innovation across the crypto economy.

• Yesterday, the Financial Stability Board (FSB) published a proposed framework for the international regulation of crypto-asset activities. The core components of this framework are proposals for:
  • recommendations that promote the consistency and comprehensiveness of regulatory, supervisory and oversight approaches to crypto-asset activities and markets and strengthen international cooperation, coordination and information sharing; and
  • revised high-level recommendations for the regulation, supervision, and oversight of “global stablecoin” arrangements to address associated financial stability risks more effectively.
  • The proposed recommendations are issued for public consultation. The FSB asked for all responses to be sent to fsb@fsb.org by Thursday, December 15 2022.
• A few weeks ago, the CFTC took action against Ooki Dao and predecessor bZeroX “for offering illegal, off-exchange digital-asset trading, registration violations, and failing to comply with the Bank Secrecy Act”.
  • Speaking at DC Fintech Week earlier this week, CFTC Chairman Rostin Behnam called the case against Ooki DAO “so egregious and so obvious” that the CFTC had to pursue it, noting, “people getting involved with a decentralized autonomous organization (DAO) should be aware they’re not immune to government attention.”
• Yesterday, it was uncovered that the SEC was investigating Yuga Labs Inc., the creator of the popular Bored Ape Yacht Club collection of NFTs, over whether sales of its digital assets violate federal law.
  • According to reports, the regulator is examining whether certain nonfungible tokens from the Miami-based company are more akin to stocks and should follow the same disclosure;
    • Ape fell ~9.5% on the news
• In addition, crypto exchange Bittrex has been charged $53 million to settle two enforcement actions levied by the U.S. Treasury Department for the company's violations of sanctions programs and of the Bank Secrecy Act between 2014 and 2018.
  • The enforcement actions are broken into a $24 million settlement with Treasury's Office of Foreign Asset Controls (OFAC) and a $29 million settlement with FinCEN;
  • The actions represent OFAC's largest virtual currency enforcement action and the first coordinated in parallel to FinCEN, according to the government release;
  • A statement from Bittrex said it will pay "just over $29 million" under the terms and agreements it struck with both FinCEN and OFAC.

ICYMI:

• America’s Oldest Bank, BNY Mellon, Will Hold That Crypto Now (WSJ)
• Google To Allow Crypto Payments with New Coinbase Deal (Forbes)
• Crypto investors still haven’t priced in the upside from the Ethereum merge, JPMorgan says (CNBC.com)
• Crypto VC deals continue drop as activity follows bearish market prices (TechCrunch)
• Dogecoin Soars 32% in 24 Hours as Coinbase Hops on the Crypto-Meme Train (CoinDesk)
• Portugal proposes 28% tax on annual crypto trading profits next year (CoinTelegraph)