Proprietary Data Insights
Financial Pros Top Crypto Searches November
Regulations Are Coming
Typically, a single asset class doesn’t grow to $2.6 Trillion without any regulation.
Yet, that’s exactly what cryptocurrencies have done.
Gary Gensler, head of the Securities And Exchange Commission (SEC), spoke at the Digital Asset Compliance & Market Integrity Summit on December 1st.
Unsurprisingly, he reiterated that crypto markets need clear rules of the road with more investor protections.
After this weekend’s mini ‘flash crash’ in most major tokens, it’s not hard to see why.
Gensler is particularly worried about decentralized finance (Defi) entities. They’re providing services across a variety of industries, including loans, which often come with more scrutiny.
So far, neither Congress nor the SEC has taken the necessary steps to handle these issues.
And much like China, it’s creating a shadow banking system that left unchecked, could create a catastrophic market bubble.
Crypto’s Lost Weekend
Cryptocurrencies plunged over the weekend, with Bitcoin dropping almost 10% by Saturday morning.
Crypto’s Lose Their Balance
The crypto markets trade 24/7. Weekend volume is typically lighter which can lead to more volatility.
Retail Takes Its Cue From Hedge Funds
While leverage is common in foreign exchange markets, its presence in the unregulated crypto world creates serious issues.
Traders employ leverage, where they control a portfolio with a fraction of the total capital.
For example, a trader with 4 to 1 leverage can control $400 with only $100 in their account.
That’s led to some exacerbated selloffs when brokers force traders to cut their losses, especially after accounts turn negative (AKA margin calls).
The weekend cryptocurrency fallout comes on the heels of the largest stock market pullback in months.
Investors worry cryptocurrencies are in a bubble and once popped, could lead to a serious pullback.
Given the excess cash splashing around in markets looking for returns, it’s not hard to think a large chunk found its way into cryptocurrencies.
While more companies now accept cryptocurrency payments, digital money is far from universally accepted.
And it’s only a matter of time before government regulators implement rules that can seriously change the playing field.
The Bottom Line: Retail cryptocurrency investors made remarkable sums of money in the last year.
As they move to exit their positions, don’t expect institutional investors to backfill them.
Remember, there are still a limited number of crypto products for financial advisors to invest in. Until that changes, we’re at the whims of the retail crowd.