Five Things to Know in Crypto This Week: The SEC, The Fed, and Senator Warren

Key Insights:

• The crypto market is on course to end an eight-week winning streak.
• Senator Elizabeth Warren and the SEC remained a hot topic.
• SEC denies the Coinbase petition for rulemaking.

Crypto Market Is on Course to End Eight-Week Winning Streak

The total crypto market cap was down 3.22% to $1,551 billion for the current week ending December 17. Failure to recoup the losses through the weekend could end an eight-week winning streak.

A broad-based crypto market sell-off on Monday impacted, with the total market cap sliding 5.12% to $1,521 billion. Notably, bitcoin (BTC) distanced itself from the 2023 high of $44,747, falling to a weekly low of $40,211.

Increasing lawmaker scrutiny, the SEC, the Fed, and a lack of progress toward a BTC-spot ETF market likely contributed to the losses.

Dovish FOMC Projections Delivered Mid-Week Relief

On Wednesday, the US Federal Reserve delivered market relief. In line with market expectations, the Fed left interest rates unchanged at 5.50%. However, the FOMC projections drove demand for riskier assets. The projections showed the Fed expecting a soft landing and a more dovish-than-expected Fed Funds Rate Trajectory (FFR).

Significantly, the Fed projected an FFR of 4.6% for 2024 compared with a September projection of 5.1%. Projections for unemployment and real GDP were also crypto-market-friendly. While expecting the economy to grow more slowly in 2024, adjustments were modest.

BTC reacted to the FOMC projections, gaining 1.47% within the first hour of the release.

SEC Denies Coinbase Petition for Rulemaking

On Friday, the SEC denied the Coinbase (COIN) petition for rulemaking. Coinbase Chief Legal Officer Paul Grewal had this to say about the SEC decision,

“Today the SEC denied Coinbase’s petition for rules for crypto. After 18 months of silence, we went to court to get the response the law requires. With appreciation for the Third Circuit, later today we’ll again seek its help by challenging the SEC’s abdication of its duty.”

Notably, the SEC letter to Coinbase said,

“The Commission disagrees with the Petition’s assertion that application of existing securities statutes and regulations to crypto asset securities, issuers of those securities, and intermediaries in trading, settlement, and custody of those securities is unworkable.”

The SEC letter went on to say,

“The Commission is also engaged in many undertakings that relate to regulatory priorities extending well beyond crypto asset securities. The requested regulatory action would significantly constrain the Commission’s choices regarding competing priorities […].”

Grewal remarked on comments within the letter, saying,

“In Congressional testimony after we were permitted to list in 2021, the SEC Chair himself declared that that there are no regulatory authorities applicable to the cryptocurrency exchanges.”

Coinbase co-founder and CEO Brian Armstrong reacted to the SEC decision, saying,

“Now that they’ve formally responded (with a no!) we can challenge their response in court, which helps us get one step closer to regulatory clarity.”

The markets responded to the news. Coinbase shares ended the Friday session down 3.73% to 147.90.

Senator Elizabeth Warren in the Spotlight

Senator Elizabeth Warren and the anti-crypto drive remained a hot topic in the week. On Monday, December 11, Senator Warren issued a statement revealing increased support for the Digital Asset Anti-Money Laundering Act.

Notably, Senator Warren continued to highlight the use of crypto for illicit activity, saying,

“The Treasury Department is making clear that we need new laws to crack down on crypto’s use in enabling terrorist groups, rogue nations, drug lords, ransomware gangs, and fraudsters to launder billions in stolen funds, evade sanctions, fund illegal weapons programs, and profit from devastating cyberattacks.”

According to the statement, five additional senators joined in support of the crypto bill, including three members of the Banking Committee. The legislation proposes anti-money laundering (AML) and countering the financing of terrorism (CFT) frameworks for the digital asset space.

On Wednesday, December 6, 2023, Senator Warren and CEOs of US banks attended a Banking Committee hearing targeting cryptos. JPMorgan Chase (JPM) CEO Jamie Dimon delivered an anti-crypto tirade, saying,

“If I was the government, I would close it down.”

SEC Puts its Foot Down on BTC-Spot ETF Structures

Progress toward a BTC-spot ETF market continued this week. However, issuers faced an SEC roadblock regarding In-Kind Creates. Recently, the SEC called on issuers to amend BTC-spot ETF applications to Cash Creates. However, Blackrock (BLK) and Fidelity were among the issuers attempting to convince the SEC to accept In-Kind Creates.

In the week, Invesco filed an amendment, switching to Cash Creates, suggesting that the SEC is unwavering on its call for Cash Creates.