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Bitcoin, crypto crash muddies the regulatory waters: Morning Brief

·Editor focused on markets and the economy
·7-min read
In this article:
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This article first appeared in the Morning Brief. Get the Morning Brief sent directly to your inbox every Monday to Friday by 6:30 a.m. ET. Subscribe

Wednesday, January 26, 2022

El Salvador's president is buying the bitcoin dip — but few others are

As dizzying as the bedlam on Wall Street has been, aided and abetted by retail investors apparently missing the heady meme stock days of GameStop (GME) and AMC (AMC), it actually pales in comparison to what’s been afoot in the world of cryptocurrencies.

January isn’t even over yet, but crypto is in the throes of a long, cold winter, irrespective of the impulses of El Salvador’s bitcoin-loving president.

Over the last few weeks, Yahoo Finance’s David Hollerith has been all over the carnage taking place in the market for digital coins, where bears appear to have the upper hand. And according to one analyst who spoke with Hollerith, one extreme bear case could see bitcoin (BTC-USD) tumble as low as $14,000.

Whether that grim scenario actually comes to fruition is anyone’s guess. However, one thing is clear: The longer this rout continues, the greater the likelihood that the forces shaping the debate in Washington may opt for regulatory overreach.

The volatility — which has cleaved bitcoin’s gains in half since its November record high above $67,000 — led American Express CEO Stephen Squeri to take a victory lap in a Yahoo Finance Live interview over being cautious about the charge card company jumping into crypto-based payments. It has also prompted the IMF on Tuesday to call on Bukele to pull back on El Salvador’s bitcoin legal tender law.

Yahoo Finance’s Jennifer Schonberger confirmed that the White House is poised to take a more assertive role in the conversation about cryptocurrency oversight. Soon-to-be-released guidance from a National Security Council (NSC) memorandum “will task federal agencies to assess the risks and opportunities that crypto poses, and delve into the details of a central bank digital currency,” Schonberger reported on Tuesday.

Building on last week’s news that the Federal Reserve is openly flirting with the creation of its own digital currency, Schonberger added that the Biden administration’s move “will also review the impact of digital assets on financial stability, and normalizing regulations for crypto with other countries.”

The denizens of D.C.’s political and policy establishments — busy as they are fighting over just about everything — are trying to determine the rules that should govern crypto, an asset class that Securities and Exchange Commission Chair Gary Gensler has been less than enthusiastic about, a status quo he’s called “the Wild West.”

The chairman has a point: There’s been a noticeable spike in illicit and fraudulent activity in crypto. Recently, Hollerith also reported that various scams and hacks have cost crypto investors tens of billions of dollars; meanwhile, a new crypto protocol called Tornado Cash is amplifying ethereum (ETH-USD) laundering fears.

Billed as an alternative to risky, fiat-based asset, crypto has seen a massive influx of small investors. While it’s certainly true that digital currencies are falling prey to the same worries battering stocks, inflated as they are by years of lavish monetary and fiscal stimulus, a key difference is that equities are a heavily regulated asset class. Crypto is, to steal a phrase from Gensler, a Wild West in its infancy, with few guardrails at this point.

Within Congress, various factions are forming to shape the contours of crypto regulation. While some policymakers are inclined to see the industry blossom, others (such as Gensler) would rather err on the side of protecting investors.

Protecting investors from fraud and big losses is ostensibly what regulators should aim to do. Yet as the aftermath of the 2008 financial crisis illustrated, it doesn’t take much for Washington to create new laws that end up becoming way more complicated than originally envisioned. And nothing gets policymakers more agitated than a volatile market that hurts small investors, or creates systemic risk that puts large ones on the brink of insolvency.

If the current bear trend continues, the Great Crypto Rout of 2022 is bound to lead to unpleasant stories of retail buyers in the red, or even bigger players ending up on the wrong side of the trend.

In the absence of a concrete regulatory infrastructure, calls for regulators to “do something” will grow louder — and that could influence the debate in ways bitcoin evangelists may not like (some already don’t).

By Javier E. David, editor at Yahoo Finance. Follow him at @Teflongeek

Editor's note: We want your feedback. Please take this quick survey to let us know if we should launch another newsletter. If the answer is yes, what type of content should the newsletter include?

What to watch today

Economy

  • 7:00 a.m. ET: MBA Mortgage Applications, week ended January 21 (2.3% during prior week)

  • 8:30 a.m. ET: Advance Goods Trade Balance, December (-$96.0 billion expected, -$98.0 billion in November)

  • 8:30 a.m. ET: Wholesale Inventories, month-over-month, December preliminary (1.3% expected, 1.4% in November)

  • 10:00 a.m. ET: New home sales, December (760,000 expected, 744,000 in November)

  • 2:00 p.m. ET: Federal Reserve Monetary Policy Decision

Earnings

Pre-market

  • 6:00 a.m. ET: Stifel Financial Corp. (SF) is expected to report adjusted earnings of 86 cents per share on revenue of $1.43 billion

  • 6:00 a.m. ET: Anthem Inc. (ANTM) is expected to report adjusted earnings of $5.12 per share on revenue of $36.58 billion

  • 6:30 a.m. ET: AT&T (T) is expected to report adjusted earnings of 75 cents per share on revenue of $40.47 billion

  • 7:00 a.m. ET: General Dynamics Corp. (GD) is expected to report adjusted earnings of $3.37 per share on revenue of $10.67 billion

  • 7:00 a.m. ET: Nasdaq Inc. (NDAQ) is expected to report adjusted earnings of $1.73 per share on revenue of $867.80 million

  • 7:30 a.m. ET: Kimberly-Clark Corp. (KMB) is expected to report adjusted earnings of $1.24 per share on revenue of $4.89 billion

  • 7:30 a.m. ET: Boeing (BA) is expected to report adjusted losses of 4 cents per share on revenue of $16.67 billion

  • 7:30 a.m. ET: Abbott Laboratories (ABT) is expected to report adjusted earnings of $1.21 per. share on revenue of $10.73 billion

  • 8:15 a.m. ET: The Progressive Corp. (PGR) is expected to report adjusted earnings of 99 cents per share on revenue of $12.09 billion

Post-market

  • 4:00 p.m. ET: Intel (INTC) is expected to report adjusted earnings of 90 cents per share on revenue of $18.38 billion

  • 4:05 p.m. ET: Las Vegas Sands Corp. (LVS) is expected to report adjusted losses of 26 cents per share on revenue of $1.05 billion

  • 4:05 p.m. ET: Whirlpool Corp. (WHR) is expected to report adjusted earnings of $5.93 per share on revenue of $5.89 billion

  • 4:10 p.m. ET: ServiceNow Inc. (NOW) is expected to report adjusted earnings of $1.43 per share on revenue of $1.6 billion

  • 4:10 p.m. ET: Qualtrics International (XM) is expected to report adjusted losses of 2 cents per share on revenue of $297.72 million

  • 4:10 p.m. ET: Tesla (TSLA) is expected to report adjusted earnings of $2.37 per share on revenue of $16.64 billion

  • 4:20 p.m. ET: Xilinx (XLNX) is expected to report adjusted earnings of $1.02 per share on revenue of $949.44 million

Politics

  • President Biden is set to host a range of CEOs — from General Motors (GM) CEO Mary Barra to Salesforce (CRM) co-CEO Marc Benioff — at the White House for a visit at 1:00 p.m. ET. The topic is the Build Back Better legislation as Biden tries to restart momentum for his signature — but stalled — proposal.

Top News

European markets pushes higher as traders await Fed rates decision [Yahoo Finance UK]

Microsoft tops analysts' expectations in Q2 as cloud revenue soars 46% [Yahoo Finance]

Mark Zuckerberg’s stablecoin ambitions unravel with Diem sale talks [Bloomberg]

Robinhood says it is in 'strong position' to face unlikely market events [Reuters]

Yahoo Finance Highlights

Ford CEO aims for 600,000 units in 22 months: Demand for our electric vehicles is high 

Inflationary sentiment spikes to record high among Yelp reviewers: report

Starbucks reversal on vaccine mandate sparks customer, barista backlash

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