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What makes the cryptocurrency in danger-Trading market

What makes the cryptocurrency in danger?

The reasons why cryptocurrencies are ringing the alarm


Interest in cryptocurrencies has soared over the past year, as investors flock to major digital currencies like Bitcoin and the growing industry of associated financial products, prompting regulators to lay down new rules for a fast-growing world.

Designated financial regulators pledged to crack down on any tampering or abuse in the cryptocurrency industry, while industry advocates insist that the government should establish clear and consistent rules for everyone to follow.

The reasons why cryptocurrencies are ringing the alarm


Soaring and volatile prices

As stocks blasted to record highs through 2020, major cryptocurrencies exploded right beside them. The price of one bitcoin skyrocketed from roughly $7,300 at the start of 2020 to a peak of $63,503 in mid-April of this year. Other prominent cryptocurrencies such as ethereum and even coins created as jokes such as dogecoin saw similarly meteoric rises, which prompted a cycle of investor enthusiasm driven by soaring prices and prominent onetime supporters such as Elon Musk.

But the rally buckled in a major way this week not long after Musk disavowed bitcoin, knocking $30,000 off its price — two months of growth — and 40 percent off its value since last Friday.

“If you’re a crypto investor, you’ve probably had to deal with major drops in the past. But this time around felt especially painful,” wrote Lule Demmissie, president of Ally Invest, in a Friday research note.

“Bitcoin has looked like the classic case of a crowded trade that turned. Investors have jumped from Bitcoin to Ethereum to Dogecoin in search for the hottest trend in the crypto space. This week, crypto holders rushed to the exits, with all three coins down 30% or more from their peaks,” Demmissie added.

Banks and major investment companies that refused to touch cryptocurrencies are now accepting digital tokens as a permanent part of the financial sector, helping to legitimize the booming technology.

After the Office of the Comptroller of the Currency (OCC) gave banks the green light to hold cryptocurrency for clients, USBank Mellon and Citibank took steps to introduce crypto services. Goldman Sachs, one of the first investment banks to adopt cryptocurrency, this month announced its plan to introduce Bitcoin derivatives amid heavy demand for cryptocurrency bets, alarming skeptics in the industry.

“My broader concern is that these initiatives have not been implemented in full coordination with all stakeholders. They do not appear to have been part of a broader strategy related to the regulatory environment. Acting Currency Comptroller Michael Hsu said during a hearing in the House of Representatives this week, I think these two tasks have gone It should be a priority.


The growing pains of trading platforms

As powerful players on Wall Street began to dip their fingers in the world of cryptocurrencies, the online trading platforms and applications that had grown along with the cryptocurrency boom faced many technical and political pitfalls.

Coinbase, the biggest cryptocurrency exchange, and other firms experienced outages this week amid the crypto sell-off, and Binance — another exchange — limited all but a handful of cryptocurrency options trades amid the frenzy, drawing backlash from users.

The intense price swings and the technical issues they’ve spawned have prompted more skepticism among Democratic lawmakers about the legitimacy and safety of cryptocurrencies as investment products.

Sen. Sherrod Brown (D-Ohio), chairman of the Senate Banking Committee, urged the OCC this week to take a closer look at decisions made by his predecessors to allow some crypto trading and custody firms to offer some banking services nationally.

“A firm that cannot meet the rigorous requirements applicable to other banks should not be allowed to present itself to the public as a bank,” Brown said, calling cryptocurrencies “risky and unproven.”

But Peter Van Valkenburgh, research director at cryptocurrency think tank Coin Center, countered that the OCC’s supervision is more likely to protect preexisting customers of such firms than drawn in new ones.

“A bunch of people are already using this thing," he said. "Do you want them to use it through a company that's got heavy-duty federal regulation, or do you want them to go and find an international exchange that is licensed anywhere? Because they will.”

Some critics of cryptocurrencies dismiss them as little more than vehicles for money laundering and fraud. While those are far from the only current or potential uses, high-profile instances of crimes involving cryptocurrencies — including the $5 million in bitcoin ransom received by the alleged Colonial Pipeline hackers — have stoked concerns about regulatory gaps.

The cryptocurrency industry doesn’t fall neatly into the jurisdiction of any one state or federal regulator, making it difficult to set uniform standards or crack down on potential crime.

The Treasury Department is responsible for collecting taxes on cryptocurrency and ensuring compliance with anti-money laundering rules. The Securities and Exchange Commission has jurisdiction over certain investment offerings involving cryptocurrencies, while the Commodity Futures Trading Commission has jurisdiction over other products, partially because digital coins themselves blur the lines between securities and commodities.

And while federal bank regulators will monitor how the firms they supervise handle crypto, there is no one federal agency with the authority to regulate spot cryptocurrency exchanges, forcing many firms to get state-by-state certification from money transfer supervisors.

“While it's novel, it's incumbent on those regulators to understand it because this stuff is not going away,” said Ethan Silver, partner at law firm Lowenstein Sandler.


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