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Oxford Law Researchers Call for Strict Cryptocurrency Regulation to Avoid Another Financial Crisis

Researchers at the Oxford University Faculty of Law have published a blog post reporting they have observed an increasing trend of people moving their assets into crypto. The researchers cited the coronavirus pandemic as the main catalyst for the shift in investment behaviour. The recent phenomenon indicates that investors see crypto as a safe haven in response to the current financial crisis.

Naïve Investors Face Greater Risks

The researchers observed crypto trading volumes between 1st January and 11th March, 2020. Throughout this period, they identified the top cryptocurrencies value increased in response to new and higher reports of coronavirus cases. They further noted that this price action reversed the moment people begun to give a more positive response to traditional financial markets.

The researchers see cryptocurrency trading as a threat to traditional finance. They, therefore, urge for stricter regulations during this time of global difficulty to prevent cryptocurrency and alternative digital assets from posing a systemic risk to the current financial system.

Researchers say that the decentralized nature of cryptocurrency transactions do not rely on any central authority. Therefore, large-scale migration of cryptocurrencies from investors indicates an overall loss in trust for the banks and governments as a whole to secure their money properly.

Researchers claim that the cryptocurrency market indicates high volatility, bubbles and crashes, a phenomenon that could be explained through herding behavior. In other words, a large group of investors does something that inspires more investors to do the same. The researchers further described the crypto market as being lightly regulated and lacking transparent information.

The researchers noted that a massive influence on the cryptocurrency market is basically triggered by “market influencers” which are various websites and designed telegram channels detecting movement of “holders” of large amounts of cryptocurrencies.

The asymmetric spread of information can influence investors to make “pump and dump” schemes. Sophisticated investors attract naïve investors into the crypto market. They (sophisticated investors) perform this by inducing an artificial demand on a particular type of crypto asset, before selling their own assets to the masses. This eventually leaves the uninformed investors with a loss.

Researchers are concerned if uninformed investors engage in herding behavior, then this might lead to a market crash. Since the traditional financial market corresponds in a similar way as the crypto market, regulators should act rapidly to regulate the crypto market to prevent the systemic risk of the traditional financial system, the researchers advised.

The Financial Stability Board Urged for Proactive Crypto Regulation

This is not the time authorities call for crypto regulation. June last year, the Financial Stability Board (FSB) – the Swiss financial watchdog – urged regulators including finance ministers and central bank governors to act actively to foresee the potential impact of crypto on financial stability. The FSB brought representatives of various countries came together in a G20 meeting whereby regulators agreed to examine cryptocurrency and assess important regulations to be applied to the industry. Government officials and central banks took a closer examination at the impact of cryptos on investors, crime, and the world economy. They agreed that cryptos pose a significant risk for investors and expressed concerns regarding their use for illegal activities. G20 countries promised to apply the standards of FATF (Financial Action Task Force) – an intergovernmental body established to fight terrorist financing and money laundering – to cryptocurrency.

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Jim Rogers Predicts Economic Bailout Meltdown, Wall Street Investors will turn to Bitcoin Safe Haven

Chairman of Roger Holdings and prolific American investor Jim Rogers warns that the trillion-dollar bailout will lead to an economic meltdown. Another legendary Wall Street investor, George Ball predicts Bitcoin will be the safe haven of choice.

Jim Rogers said that the recent COVID-19 emergency stimulus programs and central bank bailouts will lead to the worst economic meltdown of his lifetime.

Rogers’ warning came in a recent interview, where he discussed the efforts of global central banks to stimulate their respective economies through the creation of trillions of dollars in currency. Despite the stock market now going back up and appearing healthy, Rogers predicts the bailout will ultimately end very badly in the long-term.

Rogers sees the US markets as a bubble that will pop when the US elections are no longer a priority. He said, “Remember there is an election in the US in six months in November and all those guys want to get re-elected. They do not care about you and me and our kids. They care about November and getting re-elected. So, all sorts of good things will keep happening and the markets will be ok for a while…”

Liquidity Flood Will Run Dry, Bitcoin Will Rise

While Jim Rogers has admitted in the past that he wished he had invested in Bitcoin in its earlier days, he said during the interview the he is putting his money in gold, silver and has bet on many of the industries that took a beating during the covid-pandemic—transportation, tourism and logistics.

In a recent interview with Reuters, George Ball the former chief executive of Prudential Securities and current chairman of Sanders Morris Harris said that despite being a long time Bitcoin opponent, he now sees Bitcoin as a safe haven asset following the United States government’s efforts to continue to stimulate the economy with liquidity.

Ball has joined the growing list of traditional financial industry experts to advocate for Bitcoin as a safe have asset and hedge against inflation. While Ball commended the efforts of the US government and the Federal Reserve and their attempts to offset the coronavirus pandemic’s disruption to the economy, he said, “The approach of the end of that road is going to be a lot closer by the fourth quarter than it is now and therefore both traders and investors should and probably will realign their portfolios substantially.”

While the impending collapse and debasing of the US dollar is currently being resisted by the Federal Reserve in its attempts to go digital with its central bank digital currency development and coming FEDNow digital payments platform, the news is a bullish indicator for the Bitcoin price and Ball predicts it will kick off on September 7, 2020.

The former Prudential Securities chief executive predicts that following September 7, Labor day, a migration will “ignite” from traditional finance to Bitcoin trading and hedging as citizens will look to secure their wealth in an asset that cannot be “undermined by the government.”

Top Executives Quit as Babel Finance Sees Financial Woes

Troubled crypto lending firm Babel Finance is continuing to face further woes as multiple top employees are leaving the company.

According to the latest report, one of the prominent employees, Yulong Liu, head of global partnerships at Babel Finance, is set to leave the company by the end of this month or early next month.

As head of partnerships, Liu has been in charge of representing Babel at public events and focuses on acquiring new partners for the company, including depositors and borrowers. The executive worked for the firm for almost three years.

Liu recently updated his LinkedIn account to state that he left working for Babel this month and shortly after deleted his profile.

Besides Liu, other employees are also reported leaving the firm. Many other workers from the partnerships team have also quit. For instance, Sean Yang, the director of global partnerships; Xavier Xiang, another director of global partnerships; and Yuchen Jiang, who worked in an unspecified partnership function, are identified to have left Babel amid the company’s troubles.

Furthermore, employees working on the PR and communications team, including Yiwei Wang, the firm’s global PR lead, and Jacynth Wang, the director of communications, among others, are also identified to have resigned.

Crypto Lending firms on Spotlight

On 17th June, Babel Finance became part of the breaking news across the world after the firm halted withdrawals and redemptions of crypto assets due to liquidity pressures.

The current extreme difficult market conditions have left Babel and other related financial institutions experiencing conductive risk events.

Three days later, Babel updated information with regards to its financial situation. The firm stated it reached an agreement with counterparties on the repayment of some debts to ease short-term liquidity.

Crypto lending firms normally collect crypto deposits from retail customers and reinvest them with the expectation of generating double-digit returns and attracting tens of billions of dollars in assets.

However, many of these firms have been unable to redeem their clients’ assets during the recent market downturn.

Last week, rival crypto staking and yield generation platform Finblox, based in Hong Kong, restricted customers to make a withdrawal of $1,500 once per month and suspended rewards. The firm made the move after it was exposed to the uncertainty facing crypto hedge fund Three Arrows Capital as well as the current market volatility.

Two weeks ago, prominent crypto lender Celsius Network suspended all withdrawals, swap, and transfers between accounts, as it cited “extreme” market conditions.

Crypto lending platform BlockFi and crypto hedge fund firm Three Arrows Capital are also recently identified as facing a liquidity crisis.

"Deutsche Bank share slide fuels global banking fears"

The recent decline in Deutsche Bank’s share price has reignited concerns about the state of the global banking system and the possibility of a new financial crisis. As we have seen in the past, major commercial banks are deemed too big to fail, and governments will often bail them out to prevent widespread economic collapse. However, the mounting debt levels of the U.S. government and other countries are raising concerns that this time, the situation may be different.

While politicians may kick the can down the road when it comes to addressing unsustainable debt levels, the market is starting to feel the effects of this issue. The yo-yoing between interest rate hikes and quantitative easing programs by central banks is not designed to solve the systemic issue of government expenditure exceeding income. Instead, the Federal Reserve and U.S. Treasury are working to protect the dollar’s position as the global world reserve currency. This short-term solution may have long-term consequences, including the threat of hyperinflation.

As a result of these economic concerns, some investors are turning to alternative investments such as Bitcoin. The cryptocurrency has often been touted as a potential hedge against inflation due to its limited supply and decentralized nature. Despite criticism from some commentators, the recent rise in Bitcoin’s price suggests that the inflation hedge thesis may be back in play.

However, the relationship between Bitcoin and inflation is complex and difficult to predict. In 2021 and early 2022, inflation was on the rise, and Bitcoin’s price fell, leading many to dismiss the idea that Bitcoin could be an inflation hedge. But some members of the Bitcoin community, such as Steven Lubka, continued to hold this conviction. They argued that the inflation was due to systemic supply chain shocks caused by the pandemic and not monetary inflation. Therefore, the idea that Bitcoin could act as a lifeboat amid the devaluing of the U.S. dollar could still hold true.

Bitcoin’s price decline in the past was also partly due to the unwinding of fraud and leverage from certain players in the cryptocurrency market. As the market continues to mature, the value of Bitcoin as a hard money asset may become more apparent to investors.

In conclusion, the recent decline in Deutsche Bank’s share price highlights the fragility of the global banking system and the potential for a new financial crisis. While politicians and central banks may try to kick the can down the road, the mounting debt levels of governments and the threat of hyperinflation suggest that a historic economic correction may be looming. Some investors are turning to Bitcoin as a potential hedge against these risks, but the relationship between the cryptocurrency and inflation remains complex and difficult to predict.

Bitcoin Liquidity Drops Despite Price Surge

Bitcoin (BTC) has seen a significant price surge of 45% in 2023, making it one of the best-performing assets in recent times. However, despite the bullish quarter in terms of price gain, BTC’s liquidity has dropped to a 10-month low. The liquidity dry-up is partly attributed to the ongoing financial crisis in the traditional financial market and regulatory actions against crypto companies.

The current financial crisis has caused several banks to collapse, which has directly impacted the crypto ecosystem. In particular, the collapse of crypto-friendly banks such as Silicon Valley Bank and Signature Bank has removed crucial U.S. dollar payment rails for crypto, leading to a liquidity crisis, especially on U.S. exchanges. This, in turn, has led to increased price volatility, forcing traders to pay more fees in slippage.

Slippage refers to the price difference between the expected price of a transaction and the price at which it is fully executed. For instance, for a $100,000 sell order, the slippage for the BTC/USD pair on Coinbase climbed by 2.5 times at the beginning of March. During the same time frame, Binance’s BTC/USDT pair’s slippage barely moved.

The liquidity crunch has also led to higher price volatility on U.S. exchanges, where the price discrepancy between BTC and U.S. dollar pairs has increased drastically compared with non-U.S. exchanges. For example, the price of BTC on Binance.US is more volatile than the average price across 10 other exchanges.

Conor Ryder, research head of on-chain data analytics firm Kaiko, explained the drastic impact of the liquidity crisis on traders and the market. He noted that stablecoins are replacing U.S. dollar pairs, and although it lessens the impact of U.S. banking troubles, it has an adverse effect on liquidity in the United States. He added that it would indirectly harm investors there.

Despite the regulatory actions taken against crypto companies, the price of Bitcoin has remained relatively strong, outperforming traditional assets such as stocks and bonds, which have seen one of their worst years. However, the liquidity crisis has undoubtedly impacted the market, and it remains to be seen how it will evolve in the coming months.

In conclusion, Bitcoin’s liquidity drop despite its price surge is a concerning development for traders and investors alike. The ongoing financial crisis and regulatory actions against crypto companies have led to a liquidity crunch, causing increased price volatility and higher fees for traders. As the market evolves, it will be interesting to see how BTC’s liquidity and price behave in response to the changing market conditions.

SEC Chairman: AI May Lead to Next Financial Crisis

Securities and Exchange Commission (SEC) Chairman Gary Gensler has expressed significant concerns about the potential consequences of artificial intelligence (AI) on the financial system. In an interview with DealBook, Gensler outlined his views on how AI could become a systemic risk and the need for responsible regulation.

AI as a Transformational Technology with Risks

Gensler sees AI as a transformational technology set to impact business and society. He co-wrote a paper in 2020 on deep learning and financial stability, concluding that a few AI companies would build foundational models that many businesses would rely on. This concentration could deepen interconnections across the economic system, making a financial crash more likely.

Gensler expects that the United States will most likely end up with two or three foundational AI models, increasing “herding” behavior. “This technology will be the center of future crises, future financial crises,” Gensler said. “It has to do with this powerful set of economics around scale and networks.”

Concerns About Concentration and Regulation

The SEC chief’s warnings extend to the potential conflicts of interest in AI models. The rise of meme stocks and retail trading apps has highlighted the power of predictive algorithms. Gensler questions whether companies using AI to study investor behavior are prioritizing user interests.

“You’re not supposed to put the adviser ahead of the investor, you’re not supposed to put the broker ahead of the investor,” Gensler emphasized. In response, the SEC proposed a rule On July 26, 2023 requiring platforms to eliminate conflicts of interest in their technology. The SEC’s proposal was to address conflicts of interest arising from investment advisers and broker-dealers using predictive data analytics to interact with investors.

SEC Chairman Gary Gensler emphasized that the rules, if adopted, would protect investors from conflicts of interest, ensuring that firms do not place their interests ahead of investors’.

The proposal would require firms to analyze and eliminate or neutralize conflicts that may emerge from using predictive analytics. The rules also include provisions for maintaining records regarding compliance with these matters.

The question of legal liability for AI is also a matter of debate. Gensler believes companies should create safe mechanisms and that using a chatbot like ChatGPT does not delegate responsibility. “There are humans that build the models that set up parameters,” he stated, emphasizing the duty of care and loyalty under the law.

Balancing Innovation with Responsibility

Gensler’s insights serve as a timely reminder of the importance of balancing innovation with responsibility. As AI continues to transform various sectors, including the financial system, his warnings underscore the need for careful regulation, oversight, and ethical considerations.

The SEC’s focus on AI’s potential risks reflects a growing awareness of the need for a comprehensive approach to ensure that technology serves the interests of investors and the broader economy, rather than creating new vulnerabilities.