CoinLoan Weekly: Post-Merge caution, US crypto framework, ETH as ESG asset
Reacting to a sweeping rout in the stock market on Tuesday, September 13, BTC collapsed from a 7-day high of $22,534.61 to just over $20,250. The price entered a tight range, remaining below the psychological threshold of $20,000 until Sunday, September 18. On Monday, September 19, it bottomed out at $18,471.22.
The bulk of the downward pressure was macroeconomic. Worse-than-expected August inflation figures caused the S&P 500, the Dow Jones Industrial Average, and the Nasdaq Composite to show their poorest daily performance since June. On Friday, September 16, BTC dipped along with other cryptocurrencies (below $19,500) as traders "sold the news" following the Ethereum Merge.
As of this writing, BTC is trading at $19,466.79, with a 24-hour loss of -1.4% and a 7-day fall of -10.5%.
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Tuesday's sell-off pulled ETH down by over 8%, from a high of $1,736.28 to $1,596.98. It plunged again on Thursday evening (September 15) as big-name investors bet against it following The Merge. ETH was trapped between $1,400 and $1,500 until the late hours of Sunday, September 18, and declined to $1,295.58 the next day.
Some of the most prominent ETH supporters have been selling their holdings for the past few weeks, anticipating post-Merge volatility. The completion of the upgrade sent ETH futures and spot prices down. By September 16, ETH-tied investment products had seen outflows exceeding inflows by $15.4 million.
As of now, ETH is trading at $1,361.05, with a 24-hour slip of -1.2% and a 7-day plunge of -22.7%.
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Consistent with general trends, XRP sank below $0.34 on Tuesday, September 13, and below $0.33 on Thursday, September 15. On Friday, September 16, the token bounced back from a 7-day low of $0.324245. It rose through the weekend, peaking at $0.397706 on Sunday, September 18. Monday, September 19, sent it down.
XRP rocketed on the news of a joint decision to expedite the SEC vs. Ripple lawsuit. Both parties filed motions for summary judgment, asking District Judge Analisa Torres to either rule that Ripple Labs violated securities laws or dismiss the lawsuit without a lengthy trial. According to Orca Capital GP Jeff Sekinger, case updates give reasons to expect a ruling in favor of Ripple Labs.
As of now, XRP is trading at $0.384575, with a 24-hour loss of -2.9% and a 7-day gain of 8.5%.
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White House unveils framework on crypto regulation
Following Biden's executive order put out in March, the White House unveiled an outline of the upcoming crypto regulation. This framework is based on nine reports from government agencies with regard to "consumer and investor protection; promoting financial stability; countering illicit finance; U.S. leadership in the global financial system and economic competitiveness; financial inclusion; and responsible innovation." The key findings include:
Potential legal amendments
According to the White House fact sheet, "The President will evaluate whether to call upon Congress to amend the Bank Secrecy Act, anti-tip-off statutes, and laws against unlicensed money transmitting," so they apply to crypto service providers, including exchanges and NFT platforms. Penalties for illicit transactions may also be raised.
The framework calls for stablecoin regulation, citing possible disruptive runs. The Treasury will cooperate with financial institutions to help them detect and mitigate cyber vulnerabilities and join forces with other agencies to track “emerging strategic risks." International allies will contribute to this effort.
In view of the "significant benefits" of a potential CBDC — a fully regulated digital twin of the US dollar backed by the Fed — the findings encourage further research and experimentation.
A CBDC-based payment system would promote financial inclusion and equity. It is "more efficient, provides a foundation for further technological innovation, facilitates faster cross-border transactions, and is environmentally sustainable." The Treasury will lead a dedicated interagency working group to support its development and consider potential implications.
Call to action
The directives urge the Securities and Exchange Commission (SEC), the Commodity Futures Trading Commission (CFTC), and other regulators to "aggressively pursue investigations and enforcement actions against unlawful practices in the digital assets space." The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) are encouraged to intensify monitoring of consumer complaints and combating unfair practices.
The Treasury is due to complete an assessment of illicit finance risk in decentralized finance by the end of February 2023. By July 2023, the agency will present an assessment on NFTs.
With Ethereum gone green, pundits project interest from ESG investors
The environmental benefits of The Merge could draw in ESG-conscious investors. The Ethereum Foundation expects the switch to Proof of stake to reduce the network's energy intake by an impressive 99.95%. Vitalik Buterin has even retweeted a claim that The Merge "will reduce worldwide electricity consumption by 0.2%."
Meanwhile, Bitcoin still relies on Proof of work, and its carbon footprint has been compared to the emissions of entire countries. As a result, the second biggest coin by market cap is more attractive to the eco-minded. With mining gone, validators "stake" ETH to verify transactions without mining hardware.
ESG stands for "environmental, social, and governance" — three criteria of a company's sustainability. ESG investing, also known as socially responsible investing or sustainable investing, centers on this triad. In recent years, this approach has been increasingly popular with institutions and individuals. Bloomberg projects global ESG assets to reach $41 trillion by the end of 2022. Currently, they account for one in three dollars managed globally.
Many pundits regard Ethereum's transition as a watershed moment. According to Conor Svensson, CEO and Founder of Web3 Labs, PoS could give the network an edge over PoW rivals and help ETH eventually overtake BTC. "If you're a corporate looking to invest in cryptocurrencies, given the ESG narrative I imagine a lot of them will be slightly hesitant about getting exposure to Bitcoin when there's this other asset which doesn't use huge amounts of power," he said.
Charlie Karaboga, Block Earner CEO and co-founder, suggests The Merge could "drive the future of money to be more internet-based" while Ethereum may become "the settlement layer that everyone will accept and trust." The network's sustainability will stimulate direct investment — despite strong demand, "an underlying zero-emissions, financial infrastructure" was "the missing link," Markus Thielen, chief investment officer of IDEG, told Cointelegraph.
PoS Ethereum is poised to attract corporate giants with ESG agendas. Blockworks co-founder Jason Yanowitz described its transition as "the best narrative crypto and ETH has ever seen."