Welcome to our #173 weekly newsletter.
“For women taking control of their financial future”
-Jana Hlistova
From The Purse
In this week’s newsletter, we focus on the US Securities and Exchange Commission (SEC) hearing Tuesday and consider whether ethereum (ETH) is a commodity or a security.
The US market is growing more frustrated with the SEC’s lack of regulation clarity which means the crypto industry is starting to look to the EU and the UK. And the UK could become the new ‘hub for Web3 innovation’.
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And you can review the news in brief so you stay on top of global financial, economic and investing trends.
I hope you enjoy this week’s newsletter.
Until next week,
Jana
Is ethereum a commodity or security?
In a US hearing Tuesday, the SEC chair refuses to answer the question about whether ethereum is a commodity or a security.
On Tuesday, the US Securities and Exchange Commission (SEC) chair, Gary Gensler was questioned about whether ethereum (ETH) was a commodity or a security, as reported by Cointelegraph.
ETH is the second largest cryptocurrency after Bitcoin and its current market cap is $224.80bn. The price of one ETH is $1,869.43. Ethereum is an open-source, decentralised smart contract blockchain platform and its token is ETH (ether).
How to classify cryptocurrencies has become a central question because it will determine how the market is regulated and how it develops.
In the US hearing, Patrick McHenry – the chair of the United States House Financial Services Committee, challenged Gensler repeatedly who refused to confirm either way.
Representative McHenry used his opening statement ‘to bring up the commission’s ‘punishing’ of digital asset firms through regulation by enforcement without a clear path to compliance’.
McHenry repeatedly talked over Gensler who did not provide specifics in his response, citing Gensler’s willingness to label Bitcoin as a commodity, in addition to hinting at private conversations on ether before the hearing.
According to the Co-founder of Ethereum, Joseph Lubin, ethereum is more akin to a commodity like oil. In March at Paris Blockchain Week, Lubin said he was ‘very confident’ ether was not a security.
Previously, the SEC suggested ethereum may be classed as a security due to its switch to a new verification system known as ‘proof of stake’, where the blockchain’s validators gain interest-like yield.
And unlike Bitcoin, ether fuels an ecosystem of applications where users can make trades, loans, or buy nonfungible tokens.
While lecturing at MIT on a blockchain open course (before his appointment to the SEC), Gensler stated that ethereum may have been a security in 2014, but now SEC has stated it is sufficiently decentralised that it is no longer a security.
What is a commodity vs a security?
Commodities are raw materials that are used as inputs in the production of other goods or services, such as oil and natural gas, gold and silver, as well as food and agricultural goods like coffee. They tend to have limited supply.
A security is broadly defined as a financial instrument that has value and can be traded. It includes stocks, bonds, exchange-traded funds (ETFs) as well as other investments.
Commodity markets are generally regulated less stringently.
Securities on the other hand are subject to rules on price transparency, greater reporting demands, as well as market abuse oversight.
Securities are closely regulated by the Securities and Exchange Commission (SEC), while commodities are regulated by the Commodity Futures Trading Commission (CFTC).
According to some regulators ether fulfils the Howey Test…
….which states that an investment contract exists if there is an investment of money in a common enterprise and the expectation of profits derived from the efforts of others.
Lubin has countered this argument by saying that ‘..people buy barrels of oil with the expectation of profit’, therefore ethereum should be considered a commodity.
In March, the SEC issued crypto exchange Coinbase a notice warning the company that it had identified potential violations of U.S. securities law.
On Thursday, the European Union finalised its wide-ranging markets in crypto assets (MiCA) legislation on Thursday, making it one of the first major jurisdictions to clarify its approach on supervising the sector.
Meanwhile, UK Economic Secretary, Andrew Griffith confirmed that the UK may have crypto regulation within next the 12 months.
Brian Armstrong, the CEO of US based crypto exchange Coinbase, met with Griffith earlier this week while he was in London to give a speech on how the UK could ultimately become an ‘innovation hub for the Web3 economy.’
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What next? (Re) listen to The Purse Podcast:
News in Brief
Financial news
China’s economy grew 4.5% in Q1 2023, the fastest in a year and at a faster pace than expected as the end of Covid Zero gave way to stronger consumer spending and factory output.
Bond volatility- measured by MOVE index - has come off recent highs following the SVB crisis but bond traders say the market’s recent calm isn't likely to last.
Bank run in slow motion continues. Deposits at US banks fell by $76.2bn last week even before tax payments, indicating the financial system remains fragile after a string of bank failures. The drop was mostly at large and foreign institutions, but they also fell at small banks.
UK inflation falls by less than expected as food prices soar by 19.1%. Annual rate as measured by consumer prices index dropped to 10.1% in March, says ONS.
The UK unemployment rate for December 2022 to February 2023 increased by 0.1 percentage points on the quarter to 3.8%.The increase in unemployment, the ONS says, was driven by people unemployed for up to six months.
The City of London is anticipating that UK interest rates could hit 5% before the end of the year, after prices across the economy rose faster than expected, again.
UK house prices fell in February, with the average property selling for £287,506, down from £290,381 in January. This pulled annual house price inflation down to 5.5% from 6.5%.
Tesla has lost the equivalent of Ford’s market value in a single day on Thursday on fears of an escalating price war. At $516bn, Tesla's market capitalisation ended Thursday below Meta Platforms' for the first time since 2021.
Crypto: bitcoin, ethereum, DeFi & NFTs
Bitcoin dropped 10% within a week as Federal Reserve Terminal rate has risen to 5.28%.
BTC/USD barely preserving the $27,000 mark on Saturday after the Wall Street trading week ended on a sour note. And analysts are warning of a return to $25,000.
Ether price has dropped to approximately $1,876. If the price turns up, it improves the prospects for a rally to $2,200. If the price continues lower and breaks below $1,846, the ETH/USDT pair could tumble to the 50% retracement level of $1,755 and thereafter to the 61.8% retracement level of 1,663.
Gary Gensler refuses to answer if ETH is a security: SEC hearing. SEC Chair Gary Gensler has said the SEC considers Bitcoin a commodity but refused to pin down Ether at an oversight hearing.
MicroStrategy’s stock price more than doubles in 2023 in lockstep with Bitcoin. Bank of America and Fidelity have increased their MicroStrategy exposure in what appears to be a passive Bitcoin investment.
Coinbase sets sights on UK crypto hub as regulatory uncertainty looms at home in the US.
The European Union finalised its wide-ranging markets in crypto assets (MiCA) legislation on Thursday, making it one of the first major jurisdictions to clarify its approach on supervising the sector.
UK may have crypto regulation within a year, says senior minister. The lawmaker said the regulation will need to be both ‘pragmatic’ and ‘proportionate’ to ensure economic growth is maximised.
Bitcoin whale moves nearly $8m after 10 years of inactivity. A holder who hadn’t touched their crypto for a decade just moved over 279 BTC, or $7.8m worth of the crypto, to new wallets.
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