THE COIN STREET JOURNAL
Market News - June 28th 2024
SOLANA COULD BENEFIT IF TRUMP REGAINS PRESIDENCY
A recent market analysis by GSR, a market-making firm, suggests that if Donald Trump regains the presidency, Solana (SOL) could see significant benefits, including the potential launch of a Solana ETF in the U.S. This shift could bring about substantial price increases for SOL, potentially surpassing the gains seen by bitcoin (BTC) when its spot ETF was introduced.
The U.S. presidential election is poised to be a crucial event for crypto ETFs like SOL. The research note shared with CoinDesk highlights that a Trump administration might expedite the process of launching crypto ETFs, which traditionally require the establishment of federally regulated futures contracts—a step Solana has yet to complete.
According to the note, it is conceivable that Trump’s administration would implement more favorable digital asset regulations, facilitating the introduction of numerous spot digital asset ETFs. This would position SOL, a leading crypto asset, to be one of the primary beneficiaries, potentially seeing the largest price impact.
The market maker emphasized Solana’s readiness for a spot ETF, noting the significant market demand and high degree of decentralization of its network. These factors are expected to attract ETF issuers, making SOL a strong candidate for future listings.
Historically, bitcoin’s price more than doubled around the launch of its spot ETF. GSR projects that if SOL attracts just 5% of the inflows BTC experienced, its price could more than triple. This “base case” scenario is based on previous investment trends in Solana products.
In an optimistic scenario, where Solana attracts 14% of bitcoin’s inflows, its price could increase nearly ninefold. Although these figures represent a fraction of bitcoin’s inflows, Solana’s smaller market size could result in more dramatic price movements.
However, the launch of a Solana ETF under the current regulatory framework is unlikely without significant changes, as SOL lacks the required trading history in a federally regulated futures market. This makes its ETF launch several years away under the existing playbook.
GSR’s Senior Strategist, Brian Rudick, noted that Trump’s potential presidency could alter the regulatory landscape, allowing SOL to become an ETF much sooner if Trump’s crypto-friendly promises materialize. However, this remains speculative and depends on the political outcome.
Market indicators, such as the pricing of Grayscale’s crypto trust products, do not currently reflect high expectations for a Solana ETF. Specifically, the Grayscale Solana Trust (GSOL) trades at a significant premium, which would collapse if converted to an ETF, similar to what happened with Grayscale Bitcoin Trust (GBTC).
Rudick pointed out that while the comparison between GSOL and GBTC is not perfect due to GSOL’s lower liquidity, the current premium suggests that the market does not yet anticipate a near-term Solana ETF launch. The situation remains uncertain, hinging on the political landscape and regulatory developments.
OVER $755 MILLION IN CRYPTOCURRENCY TOKENS TO BE UNLOCKED IN JULY
In July, over $755 million in cryptocurrency tokens will be unlocked as the vesting periods for more than 40 projects come to an end. These tokens are currently locked to prevent early investors and team members from selling, thereby stabilizing the project’s price during its initial stages. Vesting data tracker Token Unlocks reported that the largest crypto assets to be unlocked belong to projects such as AltLayer (ALT), Xai (XAI), Aptos (APT), Arbitrum (ARB), Optimism (OP), Sui (SUI), Immutable (IMX), and Starknet (STRK).
AltLayer will see the most significant release with 684 million ALT tokens, worth approximately $125 million, set to be unlocked on July 25. These tokens are allocated to various categories including the team, investors, advisers, protocol development, treasury ecosystem, and community. The current price of ALT is around $0.18 per token.
Xai follows with the second-largest token release, unlocking $93 million worth of tokens on July 9. Similar to AltLayer, these tokens are distributed among the team, investors, and ecosystem, with an additional $2 million allocated to reserves. XAI tokens are currently valued at $0.46 each.
Aptos, which has been regularly unlocking tokens, will release 11.31 million APT tokens worth $77 million in July. The project has already unlocked $101 million in May and $102 million in June. These tokens are designated for the foundation, community, core contributors, and investors. The price of APT has seen a significant drop, from $17.63 in April to $6.99 in late June.
Arbitrum is set to unlock another $75 million in tokens on July 16, following previous releases of $95 million in May and $105 million in June. The March 16 release of 1.1 billion ARB tokens worth $2.32 billion had a significant impact, with ARB prices dropping 63% from $2.27 in March to $0.82 currently.
Optimism, Sui, Immutable, and Starknet will also be unlocking substantial amounts of their native tokens in July, continuing the trend from previous months. These projects have released millions in tokens recently and will do so again in July, impacting their respective markets.
Token unlocks often lead to price volatility as large amounts of tokens become available for trading. The mechanism aims to provide stability in the early stages but can result in price drops when the market is flooded with new tokens. The performance of tokens like APT and ARB reflects the potential price fluctuations that can occur following significant unlock events.
As these token unlocks proceed, the crypto market may experience shifts in value and trading volumes. Investors and stakeholders closely monitor these events to gauge potential impacts on their holdings and the broader market sentiment. The ongoing unlocking of tokens is a critical aspect of the lifecycle of crypto projects, influencing their long-term stability and growth.
COINBASE INITIATES LEGAL ACTIONS AGAINST SEC
Coinbase has initiated legal action against the U.S. Securities and Exchange Commission (SEC) and the Federal Deposit Insurance Corporation (FDIC) for non-compliance with Freedom of Information Act (FOIA) requests. The lawsuits, filed in the U.S. District Court for the District of Columbia, allege that federal financial regulators are attempting to isolate the crypto industry from the banking sector. Coinbase engaged History Associates Inc. to file these FOIA requests, aiming to uncover regulatory actions that the company believes are detrimental to the digital-asset industry.
The FOIA requests submitted by Coinbase sought information from the SEC regarding the agency’s stance on Ethereum, particularly its transition to a proof-of-stake consensus mechanism. The SEC had previously initiated an investigation into “Ethereum 2.0” in March 2023, which was later closed. Coinbase’s consultant, History Associates, requested access to documents related to this investigation but was denied, with the SEC citing potential harm to ongoing enforcement proceedings.
In addition to the Ethereum-related requests, History Associates filed FOIA requests concerning two concluded investigations involving Zachary Coburn and Enigma MPC. Both cases had resulted in settlements with the SEC, yet the agency refused to disclose the requested records, arguing that releasing the information could adversely affect current enforcement activities. Coinbase contends that the SEC’s refusal undermines transparency and hinders understanding of the regulatory landscape for digital assets.
The lawsuit against the FDIC focuses on “pause letters” issued by the agency between March 2022 and May 2023, which instructed financial institutions to halt crypto-related activities and provide additional information. Coinbase alleges that these letters are part of a broader strategy, termed Operation Choke Point 2.0, designed to sever the crypto industry’s access to essential banking services. History Associates’ requests for copies of these letters were denied by the FDIC, which argued that disclosure would compromise confidential communications between banks and regulators.
Coinbase’s litigation reflects ongoing tensions between the crypto exchange and federal regulators. In April 2023, Coinbase sued the SEC to compel a response to its petition for rulemaking specific to the crypto industry. This petition, initially submitted in July 2022, sought formal guidance for the industry. The SEC has yet to establish crypto-specific regulations, instead proposing broader rules that include crypto, such as the revised custody rule for registered investment advisors.
The SEC has taken a robust enforcement approach against crypto platforms, including suing Coinbase for operating without registration. This has led to significant criticism from the crypto industry, which accuses the SEC of “regulation by enforcement.” SEC Chair Gary Gensler maintains that most cryptocurrencies are securities and should be regulated accordingly, further intensifying the regulatory conflict.
Coinbase’s lawsuits aim to shed light on the regulatory practices of the SEC and FDIC, which the company claims are part of a concerted effort to undermine the crypto industry. By seeking transparency through FOIA requests, Coinbase hopes to reveal the extent of regulatory actions that it views as harmful to the digital-asset ecosystem.
The outcome of these lawsuits could have significant implications for the relationship between the crypto industry and federal regulators. A court ruling in favor of Coinbase could force the SEC and FDIC to disclose information that might influence future regulatory policies and enforcement strategies.
The legal actions taken by Coinbase underscore the broader debate over how cryptocurrencies should be regulated in the United States. As the industry continues to grow, the need for clear and consistent regulatory frameworks becomes increasingly pressing, with companies like Coinbase advocating for more explicit guidelines to navigate the evolving landscape.
MiCA LEGISLATION TO TAKE EFFECT JUNE 30TH
The European Union’s Markets in Crypto Assets (MiCA) legislation, which includes restrictive rules for stablecoins, will take effect on June 30. These rules impose a cap on stablecoin transactions, limiting them to 1 million daily transactions for goods or services, whether settled on-chain or off-chain. This move places significant operational constraints on major stablecoin issuers like Tether and Circle within the EU.
Robert Kopitsch, the secretary-general of Blockchain for Europe, highlighted the impact these regulations might have, noting that stablecoin issuers, particularly those with dollar-pegged assets, may struggle to comply. MiCA’s legislation aims to ensure stablecoin issuers acquire proper authorization to operate in the EU’s 27-member trading bloc, while adhering to stringent transaction limits.
MiCA, passed into law last year, allows firms licensed in one EU member state to operate across the entire bloc. According to Article 23 of MiCA, companies must halt the issuance of stablecoins used for more than 1 million transactions or exceeding 200 million euros ($215 million) in daily value as a means of exchange. These provisions are designed to prevent non-euro stablecoins from challenging the euro’s dominance.
The European Banking Authority (EBA) supports these caps to safeguard the EU’s monetary system, influenced by past concerns over projects like Facebook’s now-abandoned Diem. Although the EBA insists these rules don’t prohibit issuing stablecoins denominated in other currencies, the transaction caps specifically target those used for exchanging goods or services.
Some industry groups, such as Blockchain for Europe and the Digital Euro Association, have opposed these measures, arguing that they effectively ban large stablecoin issuers. The EBA clarified that stablecoin transactions not involving exchanges for goods or services or those conducted outside the EU might be exempt from the caps.
Issuers must navigate complex regulatory requirements, including obtaining an e-money institution license or banking license, which is a costly and time-consuming process. The EBA plans to publish a final report on monitoring these transactions by the end of the month, providing further clarity on compliance expectations.
Stablecoin issuers like Circle and Tether are working to meet these new requirements. Circle aims to secure an e-money license and has already conditionally registered as a Digital Asset Service Provider in France. Circle plans to issue its euro-backed EURC and USD-backed USDC from its EU entity in compliance with MiCA, subject to regulatory approval.
Similarly, Tether has been engaging with its European exchange partners to ensure compliance with MiCA. However, the industry awaits further guidance from the European Commission and newly elected European Parliament commissioners on how these regulations will be implemented and potentially adjusted.
Overall, the restrictive nature of MiCA’s stablecoin rules poses significant challenges for issuers, potentially reshaping the landscape of stablecoin operations within the EU. As the deadline approaches, issuers are racing to align with the new regulatory framework to continue operating legally in the region.