24 May Tom Lee: ‘Adult Supervision’ coming to cryptocurrency soon
Fundstrat cryptocurrency analyst Tom Lee says recent news headlines about government investigations around ICOs and price manipulation signal the arrival of regulations for cryptocurrency on the horizon.
Negative news stories about ICOs and cryptocurrency scams have pushed cryptocurrency prices downwards as the market assesses cryptocurrency regulatory risk.
Recently setting the tone for negative news was The Wall Street Journal’s report investigating documentation for 1,450 initial coin offerings (ICOs) of which 271 had red flags including plagiarized investor documents, promises of guaranteed returns and missing or fake executive team bios.
“These stories have pressured the crypto market, as regulatory action (and related headline risk) reduces risk appetite and also is a further deterrent for near-term inflows from new investors. However, these actions signal that “adult supervision” is coming to crypto and adding such oversight incrementally improves the structural integrity and legitimacy for crypto-currency investor. In other words, in order for institutional investors to be more actively engaged in crypto markets, such adult supervision is a necessary precondition,” Lee writes in Fundstrat’s May 24 client newsletter.
“Operation Cryptosweep” & DOJ bitcoin price manipulation probe
The recent launch of “Operation Cryptosweep” by the North American Securities Administrators Association (NASAA) started a coordinated international crackdown on fraudulent ICOs with 70 investigations and 35 enforcement actions now underway.
“The actions announced today are just the tip of the iceberg,” Joseph P. Borg, NASAA President and Director of the Alabama Securities Commission said, noting the task force found approximately 30,000 crypto-related domain name registrations, most of which appeared in 2017 and 2018
It’s the first large-scale crackdown by NASAA, a voluntary association whose membership includes 67 state, provincial, and territorial securities administrators in the 50 US states, the District of Columbia, Puerto Rico, the US Virgin Islands, Canada, and Mexico.
The US Department of Justice (DOJ) also began a probe of potential bitcoin price manipulation including practices such as “spoofing” and “banging the close.” These practices have also been used in traditional equities and CDO markets and Lee calls this “a very welcome development.”
On May 20, the Chinese government identified 421 fake cryptocurrencies operating globally. Lee says, “This is a red flag and could be used by Chinese regulators as a basis to further regulate ICOs—this is a good thing ultimately, even if in the short-term, this creates concerns among investors.”
Positive cryptocurrency developments
The cryptocurrency news is not all negative. Lee notes some positive fundamentals including US cryptocurrency exchange Coinbase surpassing 20 million accounts, up 50% from 13.3 million in November 2017.
The number of wallets at Blockchain.info, a global platform for digital assets, grew from 21.5 million in December 2017 to more than 24.9 million wallets by May 2018. Launched in 2011, the company now handles more than 160,000 transactions daily with users in 140 countries and has processed more than 100 million transactions since opening.
Lee noted in the past week the CME Group posted record volumes in bitcoin trading indicating growing interest by institutional investors.
Much like American politics, when it comes to cryptocurrency there doesn’t seem to be much room in the middle between the bulls and the bears.
The increased possibility of regulations is seen as mostly positive news by bringing more certainty to a very uncertain cryptocurrency marketplace.