U.S. Congressman Proposes Bill to Outlaw Cryptocurrency Purchases

During a Financial Services Committee hearing held this Thursday (May 9, 2019) U.S. Congressman Bradley Sherman (D-California) proposed a bill to outlaw cryptocurrency purchases in the country over their potential to undermine the U.S. dollar.

Sherman’s concerns regarding the cryptocurrency space are based on its ability to undermine the U.S. dollar. The Congressman stated:

I look for colleagues to join with me in introducing a bill to outlaw cryptocurrency purchases by Americans, so that we nip this in the bud, in part because an awful lot of our international power comes from the fact that the dollar is the standard unit of international finance and transactions.

He added that cryptocurrencies have the ability to empower nations that have been sanctioned by the United States, claiming it is the “announced purpose of the supporters of cryptocurrency to take that power away from us,” and put the United States in a position where international sanctions are irrelevant.

Sherman’s concerns may here be somewhat justified, as embattled nations have been known to turn to cryptocurrencies. Venezuela, for example, launched an oil-backed cryptocurrency to raise funds and bypass international sanctions, while Iran launched a gold-backed crypto shortly after seeing its banks get banned from using the SWIFT financial messaging system.

The Congressman also referred to Hamas’ efforts to raise funds using bitcoin. As covered, the group’s military wing managed to raise $7,400 worth of the flagship cryptocurrency in a few months while experimenting with crypto.

Most in the cryptocurrency space believe a ban on cryptocurrency purchases in the United States is unlikely, given the cryptocurrency community’s strength in the county, and the support that has been shown to the industry so far.

Notably, this is the second time this month a high-profile figure calls for a ban on cryptocurrencies. As covered, renowned economist Joseph Stiglitz argued we should “shut down cryptocurrencies” after defending the U.S. dollar.

This is also not the first time Sherman himself attacks cryptocurrencies. Last July, he declared U.S. citizens should be prohibited from “buying or mining cryptocurrencies.” In front of a subcommittee.

CME Looks to Double Bitcoin Futures Limit, but Is This Wise?

The Chicago Mercantile Exchange (CME) has a new request for its regulator, as it looks to double open position limits on bitcoin futures contracts in the face of significant interest.

Nasdaq reports that the CME has already petitioned its regulatory body, the Commodity Futures Trading Commission (CTFC), asking for an increase from 1000 contracts per spot month to 2000 per investor. Each contract represents five BTC, so essentially, at its peak,  a single investor's total position may edge towards a monumental 10,000 BTC.

This is in direct response to the contract's recent growth which is currently depicting record levels of activity, citing $370 million being traded per day. A spokesperson for the CME noted that the idea to increase limits was proposed on the continued maturity of the market:

Based on the significant growth and acceptance of our financially-settled CME Bitcoin futures markets, as well as our analysis of the underlying bitcoin market.

However, as Nasdaq writes the increase in the upper limit of positions is somewhat superfluous. As of July, the number of open interest contracts reached an all-time high of just 6100; given this, it seems the CME may be future-proofing.

Open to Manipulation?

However, concerns remain about the limit increase, as without them, the potential for manipulation rises; often to the detriment to the underlying asset. Although, as per the CTFC website, the threat of manipulation from bitcoin futures contracts is "low":

In general, position limits are not needed for markets where the threat of market manipulation is non-existent or very low.

Instead, Nasdaq posited that this might point to a lessening on the CTFC's strict rule of bitcoin; as well as a maturing of the market in general.

Nevertheless, some believe the CME's bitcoin futures contracts do pose a significant threat to the price of BTC; with some suggesting that blatant manipulation continues unchecked within the market.

As reported, there seems to be a correlation between the expiry dates of CME bitcoin futures contracts and a lull in the price point of BTC. In several instances, a significant drop in bitcoin's price has coincided with a closure from the CME. The most recent example of this occurred on Labor Day, September 2, when bitcoin rose an extraordinary 8% shortly after the CME shut.

Crypto analyst, Alex Kruger, highlighted this, noting the large gaps which formed on the CME chart, from the price discrepancy before and after closing.

This has become a pretty accepted practice within the market. Kruger has even gone to the lengths of compiling statistics each time this phenomenon transpired:

On these occasions, bitcoin cited an average 4.6% price discrepancy following the close of the CME.

Whether this is a coincidence or the market is indeed being actively manipulated is as yet unclear. Either way, with the increase of these limits it might be only a matter of time until we know for sure.

Featured Image Credit: Photo via Pixabay.com