Cryptocurrency: Still Making Headlines
It seems like forever ago when Bitcoin first entered the investment lexicon and it’s certainly been a rough ride since those times.
Originally hailed as the future of finance – a halcyon age of peer-to-peer transactions without the need for central authorities such as banks – the landscape has since been mired in reports of fraud and other criminal activity, environmental concerns regarding the blockchain technology which makes it possible, and extreme volatility in the perceived value of the tokens.
However, one thing which cannot be denied is that cryptocurrencies have given us in the investment world plenty to talk about over the past decade, with the concept continuing to make headlines to this day. Here are a couple of the more recent reasons cryptocurrency is still worth keeping an eye on – even if only for entertainment value.
The SEC Rejects Bitcoin ETFs
In June 2022 an application from Grayscale Investments to the US Securities and Exchange Commission to covert its Bitcoin trust into a legitimate exchange traded fund was resolutely rejected.
"This order disapproves the proposed rule change, as modified by Amendment No. 1,” wrote the SEC in its report on the ruling. "The Commission concludes that NYSE Arca has not met its burden under the Exchange Act and the Commission’s Rules of Practice to demonstrate that its proposal is consistent with the requirements of Exchange Act Section 6(b)(5), which requires, in relevant part, that the rules of a national securities exchange be "designed to prevent fraudulent and manipulative acts and practices” and "to protect investors and the public interest.””
However, Grayscale Investments have responded by initiating legal action against the SEC, claiming the fact that the commission has previously approved bitcoin futures products to trade under specific rules, demonstrates an uneven application of the regulation when it comes to spot ETFs.
Despite Grayscale Investments’ protestations, the difference lies in the fact that spot bitcoin ETFs trade based on the price of bitcoin itself, while futures-based ETFs trade based on the price of CME’s bitcoin futures product, which in turn is tied to an index. This fact, the SEC argues, is what makes spot ETFs, as applied to Bitcoin, far more vulnerable to the kind of fraudulent activity cryptocurrency has become notorious for.
Speaking to CNBC, Todd Rosenbluth Head of Research for VettaFi, a financial services company, said, "I wish Michael [Sonnenshein] best of luck in the lawsuit, but it’s hard to convince the SEC that there isn’t going to be fraud and manipulation when that’s what they’re clearly asking the asset managers to disprove time and time again.”
US Government to Investigate Celsius Bankruptcy
Crypto lender Celsius Network's collapse into bankruptcy may now be subjected to a detail government investigation of the sort usually reserved for cases such as the high-profile restructurings of Enron and Lehman Brothers.
According to a court filing entered into record on August 18th the US trustee office has numerous questions about how the company was managed, it’s financial standing, and the conditions under which its executive branch allowed it to enter bankruptcy. If approved by the judge overseeing the case, an independent probe would have to address significant transparency issues regarding Celsius company financials.
"There is no real understanding among customers, parties in interest and the public as to the type or actual value of crypto held by the Debtors or where it is held," the US Trustee wrote in the filing. "An independent examiner is necessary here to investigate and report in a clear and understandable way on the Debtors’ business model, their operations, their investments, their lending transactions, and the nature of the customer accounts to ensure public confidence in the integrity of the bankruptcy system and to neutralize the inherent distrust creditors and parties in interest have in the Debtors."
The probe would seek to answer several questions, including how Celsius Network took out a third-party loan, yet could not identify the lender, the collateral used, or even the specific type of loan that was taken out. Naturally, Celsius objects to the probe, stating in a tweet that it is concerned about the effort to interject an outside examiner into its business.
Final Thoughts
Cryptocurrency, far from being the future of finance it once hoped to be, continues to find itself mired in scandal after scandal, with a concerning number of brands being subjected to SEC attention, or straight up government investigation.
Until cryptocurrency can clean up its act, it’s unlikely to find footing as a serious investment opportunity, or a serious means of transactional finance. However, we’re sure it will continue to provide us with many stories in the years to come.
Cryptocurrency is set to be part of the conversation at Equities Leaders Summit 2023, taking place in January at the Eden Roc Miami Beach, FL.
Download the agenda today for more information and insights.