Is the Regulatory Clampdown on Crypto The Cause of Lower Prices?

Bitcoin and Ethereum, the two flagships of the cryptocurrency market, have recently seen their prices go into a tailspin. BTC is the market leader in terms of being a store of value, and ETH the more likely to offer a blockchain-based means of exchange – but both approaches are currently finding little support from investors.

Bitcoin Daily Price Chart – 2021-2020 – At Key Swing-Low Support Level

Source: IG

Bitcoin is already at a key long-term price support level, and Ethereum appears to be heading that way. The question is whether this is part of the usual high volatility crypto experience or the result of a paradigm shift in terms of regulatory restrictions on trading?

The market is supported by specialist crypto platforms and online brokers that offer crypto trading and other asset groups such as equities and forex. The former, the crypto specialists, can appeal to the anti-establishment end of the crypto fan base. They are unregulated and sometimes offer a more comprehensive range of Altcoins, but unfortunately for them, they appear to be firmly in the sights of regulators.

That regulatory oversight has primarily involved authorities offering increasingly stern guidance to retail traders. Crypto markets may have unique characteristics, but prices are still ultimately driven by supply and demand so far.

Regulatory Clampdown On Crypto

In June in the UK, the Financial Conduct Authority (FCA) ruled that the world’s biggest cryptocurrency exchange, Binance, couldn’t conduct any “regulated activity” in the UK. The FCA does not regulate cryptocurrency markets or crypto platforms but requires exchanges to register with them. Binance has not registered with the FCA and, therefore, cannot operate an exchange in the UK.

Asian regulators are also reigning in the market. In September, China’s regulators declared all crypto-related transactions “illegal” and must be banned. The move caused Bitcoin to lose 5.5% of value in one day. Singapore’s intervention included the Monetary Authority of Singapore (MAS) placing the Binance.com platform on the Investor Alert List.

Crypto Price Rally Despite Regulatory Guidance

One interesting feature of the market is the lag between the clampdown starting and prices falling. Regulators began applying pressure in Q3 of 2021, but the price of Bitcoin more than doubled between July and November.

Bitcoin Daily Price Chart – 2021-2020 – Q4 Rally

Source: IG

It is also the case that crypto traders and investors can still find ways to access the market. Multi-asset brokers such as eToro provide a user-friendly route into the market which doesn’t involve specialist wallets. The broker is regulated at a higher level – although trades in crypto are not – suggesting that the price moves are so far part of the typical extreme peaks and troughs associated with the market.

Crowdsourcing information about scam brokers can help others avoid falling into the traps set by disreputable brokers and you can share your experiences here. If you want to know more about this particular topic, or have been scammed by a fraudulent broker, you can also contact us at [email protected]

About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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