September 05, 2024

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Federal Reserve Issues Cease and Desist Order to Crypto-Friendly United Texas Bank

The Federal Reserve issued a cease and desist order to United Texas Bank, citing "significant deficiencies" in its governance and risk management related to foreign correspondent banking and crypto customers, particularly in anti-money laundering (AML) compliance. Following a May 2023 examination, the Fed found shortcomings in the bank's oversight by its board and senior management. United Texas Bank, which has worked with crypto firms like Stellar and Circle, has since made improvements to its AML program and is required to submit further compliance plans. This marks the second enforcement action against a crypto-linked bank in a month, sparking concerns of a broader regulatory crackdown on the crypto sector.

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Mastercard Launches Non-Custodial Crypto Spending with New Partnership

Mastercard has partnered with Mercuryo to launch a euro-denominated crypto debit card, allowing users to spend cryptocurrencies like Bitcoin from self-custodial wallets at over 100 million merchants in the Mastercard network. This move supports the growing adoption of self-custody, where users control their own private keys without relying on centralized platforms. The collaboration aims to bridge the gap between blockchain and traditional payments, enhancing crypto spending options. Mastercard's focus on self-custodial wallets reflects its broader effort to simplify crypto payments, despite associated fees for card issuance and maintenance.

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Robinhood to Pay $3.9 Million Settlement to California DOJ Over Crypto Withdrawal Restrictions

Robinhood has agreed to a $3.9 million settlement with the California Department of Justice for restricting cryptocurrency withdrawals between 2018 and 2022. The investigation found that customers were forced to sell their crypto back to Robinhood instead of transferring it to external wallets. Additionally, Robinhood misled users about offering competitive pricing from multiple trading venues. As part of the settlement, Robinhood must ensure customers can withdraw crypto and improve transparency regarding its custody practices. The company aims to move forward and continue expanding its crypto services, including a planned acquisition of Bitstamp.

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Trading Desk Insights

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Technical Analysis:

‍Yesterday’s sharp 4% rally to $58,500 proved short-lived as Bitcoin quickly retraced to $56,400. Despite persistent selling pressure, the $56,000 level held firm as support. This morning, Bitcoin is making another bullish push, attempting to break higher. Realized volatility appears to be decreasing, and the spread between 30-day options at-the-money implied volatility is narrowing. Historically, this suggests a significant price movement could occur within the next two to three weeks. While Ethereum (ETH) continues to underperform relative to Bitcoin, its implied volatilities remain 10 points higher. This presents ETH holders with both the opportunity and incentive to utilize options strategies to generate low-risk yield.

Crypto Developments:

As cryptocurrency becomes more integrated into the global financial system, companies are pouring substantial resources into shaping regulatory policies to align with their interests. Lobbying in the crypto space has surged by 1,386% since 2017, with major industry players aggressively working to influence U.S. regulations, according to data from Social Capital Markets. In 2023 alone, crypto firms spent a record $40.42 million on lobbying efforts, underscoring the sector’s growing influence and its drive for favorable legislation.

Apollo Global Management’s crypto division, Apollo Crypto, led the charge, spending $7.56 million on lobbying and employing 104 lobbyists, including 78 "revolvers"—individuals who transition between the public and private sectors. The Managed Funds Association followed with $4.11 million in expenditures, while Coinbase spent $2.86 million in 2023, reflecting a 3,475% increase in its lobbying efforts since 2017. This surge highlights the increasing pressure on regulators to establish crypto-friendly frameworks.

Equity Markets:

‍Treasury yields surged on Wednesday, with shorter-term notes leading the way as U.S. job openings in July fell to their lowest levels since early 2021. This drop in labor market strength pushed the yield on two-year notes below that of 10-year notes for only the second time since 2022, as traders increased bets on an aggressive rate cut by the Federal Reserve this month.

John Fath, managing partner at BTG Pactual Asset Management US LLC, noted, "The Fed may need to act sooner, possibly with a 50 basis-point cut. If they do, the yield curve should fully disinvert." Interest rate swaps indicate that traders have fully priced in a 25 basis-point cut at the upcoming Fed meeting, with a 30% chance of a more substantial half-point reduction. Overall, markets are expecting 110 basis points of rate cuts across the three remaining policy meetings this year.

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Crypto Charts

Disclaimer

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This research is for informational use only. This is not investment advice. Other than disclosures relating to Secure Digital Markets this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates, and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate.

Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of crypto assets may rise or fall because of changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

The information on which the analysis is based has been obtained from sources believed to be reliable such as, for example, the company’s financial statements filed with a regulator, company website, company white paper, pitchbook and any other sources. While Secure Digital Markets has obtained data, statistics, and information from sources it believes to be reliable, it does not perform an audit or seek independent verification of any of the data, statistics, and information it receives.

Unless otherwise provided in a separate agreement, Secure Digital Markets does not represent that the report contents meet all of the presentation and/or disclosure standards applicable in the jurisdiction the recipient is located. Secure Digital Markets and their officers, directors and employees shall not be responsible or liable for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses, or opinions within the report.

Crypto and/or digital currencies involve substantial risk, are speculative in nature and may not perform as expected. Many digital currency platforms are not subject to regulatory supervision, unlike regulated exchanges. Some platforms may commingle customer assets in shared accounts and provide inadequate custody, which may affect whether or how investors can withdraw their currency and/or subject them to money laundering. Digital currencies may be vulnerable to hacks and cyber fraud as well as significant volatility and price swings.

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