MARCH 15 (Reuters) – Bitcoin loves to flirt with the mainstream. But now, as the President of the United States says he wants to get serious, it may be getting cold.
When Joe Biden ordered officials to report on the role of cryptocurrencies in future finance last Wednesday, bitcoin jumped as much as 9% and ether by 8%, with many crypto-lovers hailing a potential milestone in mainstream acceptance.
“The real significance of that is that the president of the United States is talking about crypto,” said Jack MacDonald, CEO of Standard Custody, a company that handles digital asset custody solutions for institutional investors.
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However, cryptocurrencies are complex.
While bitcoin danced above $42,500 after the news, it has since given up those gains and is now back around $38,000. Likewise, the ether fell once again to cross $2,500.
This appears to be the market’s muted reaction to the White House’s first official statement on cryptocurrency — although who can really understand bitcoin, it’s still licking its wounds from China’s rejection and nursing the nagging anxiety of losing its identity.
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Some industry watchers are seeing bullish signs for bitcoin, saying that the presidential announcement could herald US regulations on cryptocurrency that will attract more institutional funds from the likes of pension funds and insurance companies.
“Biden’s executive order could signal the end of the Wild West for cryptocurrency as we know it,” said Edmund Kolakowski, senior financial crime advisor at London-based regulatory software firm Fenergo.
However, this may not be good news for crypto players who are thriving in the wild.
“Quantitative hedge funds that run arbitrage and quantitative strategies typically shine in the most volatile and unregulated markets,” said Ganesh Iyer, chief marketing and strategy officer at New York-based technology firm IPC.
“Only time will tell how and when this market will mature. Up to that point, there is now an opportunity for hedge funds to take advantage of ultra-low latency networks to make the most of the volatile, light and liquid crypto markets.”
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There is also little certainty about America’s regulatory intentions, as Biden has given federal agencies six months to provide guidance on the best way forward.
For one thing, it’s not clear who will be the mayor of cryptography, or for that matter whether crypto should be treated as a security or a commodity.
The Securities and Exchange Commission (SEC), which oversees listed stocks and thus symbols that are considered securities, and the Commodity Futures Trading Commission (CFTC), which oversees the commodity and derivatives markets, are among those required to provide their input in the reports.
“Details regarding the SEC, CFTC and other financial regulators are light,” said Gerald David, president of Arca Labs, the innovation arm of Los Angeles-based Arca digital asset manager.
Shane Rodgers, a former investment banker and CEO of PDX Coin, a crypto payments and interest currency app, said he is waiting to see how regulations can take shape, particularly in terms of defining the role of the Securities and Exchange Commission.
Until there is more clarity, he added, “the government can forget about innovation in cryptocurrency in the United States because, for example, I will not employ anyone or spend large amounts of research and development money in this country.”
American encryption strength
What seems certain, no matter how it happens, is that the US action will have a huge impact on the global crypto industry.
America, the traditional center of finance, is quickly becoming the same for cryptocurrencies. 43% of the world’s crypto hedge fund managers are now there, according to PwC, while the US is now also a hub for bitcoin mining after China’s crackdown on this part of the industry last year.
MacDonald in Standard Custody described Biden’s request as a “symbolic document.”
“He didn’t come out to say it was a scam or bad people doing bad things,” he added. “Quite the contrary, there is an acknowledgment that digital assets have a place in the future, and that this industry requires a thoughtful approach to regulation.”
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Reporting by Lisa Matakal and Medha Singh in Bengaluru Additional reporting by Elizabeth Hawcroft in London Writing by Alun John in Hong Kong Editing by Vidya Ranganathan and Praveen Shar
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