Cryptocurrency Space's “Regulatory Picture” Is Improving, Says Wall Street Analyst Tom Lee

  • Bitcoin bull Tom Lee has recently argued the cryptocurrency ecosystem's "regulatory picture" is improving.
  • This as various companies are "running towards" regulations, which could potentially affect bitcoin's price.

Fundstrat Global Advisors’ co-founder and well-known Bitcoin bull Tom Lee has recently weighed in on the cryptocurrency ecosystem’s regulatory outlook, and argued it is currently improving, which may reportedly help cryptocurrency prices rise.

In a note sent to clients, as reported by CNBC, the Wall Street analyst wrote:

"We believe the regulatory picture is now improving — best evidenced by Coinbase and Circle 'running towards' regulation. We are basing this on the notion that Coinbase and Circle would only take these actions if such was the case."

Tom Lee

Goldman Sachs-backed Circle, which recently acquired Poloniex for $400 million, is looking to acquire a federal banking license, and plans on registering with the US Securities and Exchange Commission (SEC) as a brokerage and trading venue to help investors buy and sell tokens deemed securities.

Coinbase, one of the largest crypto exchanges in the United States, is as CryptoGlobe covered one step closer to becoming the first SEC-regulated exchange, thanks to its acquisition of securities dealer Keystone Capital.

In his note, Lee added that Fundstrat believes both companies would “only make these moves if their perception of regulatory risks in crypto was improving. The Wall Street analyst further touted their announcements as an “implicit acknowledgement that the regulatory tide is shifting.”

Lee has in the past argued bitcoin’s price has been affected by regulatory uncertainty, specifically after he predicted the flagship cryptocurrency could surge as much as 70 percent during this year’s Consensus conference, when in reality it dropped nearly $2,000.

Per Lee, this uncertainty has been holding back demand, while preventing institutional investors from entering the market. SEC chairman Jay Clayton has recently shed some light on how cryptocurrencies are seen by the regulator, as he revealed cryptos like bitcoin aren’t seen as a security, while tokens issued through initial coin offerings (ICOs) often are.

According to Robert Cohen, chief of the Cyber Unit in the Division of Enforcement at the SEC, the regulator is looking to police crypto markets, without stifling innovation. Cohen was quoted as saying:

"We want to encourage innovation and new ways of raising capital. If there's a new and exciting tech people should have an opportunity to invest in it."

Robert Cohen

Notably, Tom Lee is known as a “bitcoin mega-bull,” as his price predictions see the cryptocurrency hit $25,000 by the end of the year, and $91,000 by March 2020. A few days ago, the mega-bull refuted various bearish arguments against the cryptocurrency and maintained his bullish price predictions.

Unregulated Crypto Derivatives Exchanges Dominate Regulated Alternatives

Trading volume on unregulated Bitcoin (BTC) derivatives exchanges is growing rapidly, and continuing to far outpace their regulated-institutional counterparts, according to the most recent (March) CryptoCompare Exchange Review.

unregulated exchange volume(source: CryptoCompare)

Both OKEx and bitFlyer exchanges hosted an average daily derivative trading volume worth well over a billion dollars during March - $1.5 billion and $1.14 billion respectively according to CryptoCompare. It seems then that the older derivative stalwart BitMEX, at $645 million daily average volume, has been rapidly eclipsed by the newer exchanges.

regulated exchange volume(source: CryptoCompare)

Institutional, fiat-dealing (regulated) exchanges hosted a fraction of this volume, the highest being $70.5 million on the CME exchange. CryptoGlobe reported last month the CME’s primary competitor, the CBOE, was shuttering its Bitcoin futures products citing low demand. CME volume spiked last month, but is down this month below to January levels.

However, despite the relatively low average volume, the CME did have one bumper day of record-breaking Bitcoin futures trading volume, trading nearly $550 million worth of bitcoin on April 4th - days after Bitcoin’s unbelievable breakout from its $4,200 resistance.

Outflanked

The ease of onboarding new customers may explain why the unregulated exchanges get more attention.

In a recent interview, BitMEX CEO Arthur Hayes underlined his exchange’s ability to “onboard a [new] customer within 10 minutes,” by accepting Bitcoin and only Bitcoin for funding. In addition, no KYC/AML checks are required to trade on BitMEX, merely an email address; whereas OKEx offers margin trading only after basic KYC/AML checks. These exchanges are registered in Seychelles and Malta, respectively, specifically to avoid such onerous accounting requirements for their customers.

As CryptoGlobe covered early in 2019, however, BitMEX and other derivative exchanges including OKEx officially exclude certain citizens from trading on their platforms due to regulatory concerns, most notably US citizens.

Hayes also intimated at the upcoming launch of an interest bearing Bitcoin-only bond, which he speculated could be used to leverage credit into future Bitcoin-denominated economic activity.