On-Chain Commentary
- The SEC has proposed a rule change affecting crypto custodians for RIAs
- Further SEC enforcement actions against Terraform Labs & Do Kwon
- Technical setups point towards bullish continuation despite macro headwinds
More regulatory news came from the SEC last week, which some view as progress towards additional regulatory clarity for digital assets while others have questioned the potential for SEC overreach. A new SEC proposal would safeguard digital assets by requiring RIAs to use regulated qualified custodians for investments. This would separate the current exchange and custodian relationship which is common among centralized exchanges in digital assets. Decentralized exchanges already function in a non-custodial manner, meaning user assets are held within an investors wallet, allowing for participation in trading activities via smart contracts.
The SEC also charged Terraform Labs and Do Kwon with defrauding investors after the multi-billion dollar Ponzi scheme collapsed mid last year. In the suit, the SEC also takes aim at wrapped assets, which may fall under the security umbrella and would have a substantial impact on the entire DeFi ecosystem as well as wrapped liquid staking derivatives such as stETH. Wrapping assets, which usually occurs through smart contracts, increases interoperability between blockchains and allows for additional composability.
After the flurry of regulatory news, of which Bitcoin is likely to be the least affected, most digital assets continue to hold above their respective 200-day moving averages. Bitcoin’s price support stands at $20,000 where the 200-day moving and psychological support reside, with overhead resistance at $25,000, the current 200-week moving average. Bitcoin has never been held this far below the 200-week moving average for extended periods of time. If an upside breakout occurs, Fibonacci extensions suggest an eventual move towards the $30,000 level. Ethereum holds a similar technical setup with support at $1,400 and resistance at $2,000, with a potential upside target of $2,500.
Macro headwinds are stirring again with the rising potential for a 50 bp hike during the next FOMC meeting on March 22nd. A 25 bp hike currently holds a 75% probability according to the CME. The Fed will also have a CPI print on March 14th to consider before the meeting, which will likely tip the scales in one direction or the other. Although digital asset correlations with traditional finance has been waning in recent weeks, a 50 bp hike or higher terminal rate will likely not be considered a bullish data point for investors with a risk-on appetite.
