The Effect of Crypto Regulation on Bitcoin (BTC)

Bitcoin - Shutterstock photo
Credit: Shutterstock photo

Back in 2014, when I started to write about Bitcoin, one of the things I found most attractive about it from a trading perspective was that it was a market that didn’t seem to follow any rules or respect any conventions. It fluctuated wildly, with what would be considered points of support or resistance in other markets being completely ignored. That opened up a lot of opportunity to those who recognized that and were disciplined enough to make it work to their advantage. Over the last eight years, though, things have changed.

Now, Bitcoin’s (BTC) price, in dollar terms, is a much more mature market. So much so that big Wall Street firms and investment funds are big players, which seems to create mixed feelings among OG coiners. Of course, most are delighted with what it has done to the price. Even levels around $20k are a joy to behold for those who got involved when the price was measured in the hundreds of dollars or less (setting aside those who invested when Bitcoin hit $60k last year). Even for those who took profits on the way up and have minimal holdings left, levels like that are a vindication. Bitcoin investors were accused of being crazy for years, but it turns out it was those who refused to invest were the crazy ones.

That brings us to today. Among some within the BTC community, there is a feeling that Bitcoin has sold out. It was supposed to challenge Wall Street, not become its plaything. Personally, that doesn’t bother me. I was always intrigued by the notion of cryptocurrency but being neither an anarcho-communist nor a libertarian, I never saw it as a tool for bringing down government. To me, it was a trading vehicle, although I also recognized it as an elegant solution to the potential problems of an inflationary monetary system, and intellectually fascinating as a concept besides.

That is why, even back in the early days, I recognized that regulation of crypto was not just inevitable, but also necessary. Now it seems that such regulation is coming. Many states, most importantly in some ways New York, now have regulation either on the books or coming soon. Some have taken the sensible but time-consuming approach of writing crypto-specific laws and rules with industry input, while others have tried to shoehorn crypto into existing regulations around securities. Whatever the approach, most are doing something this year in the wake of the Celsius blowup and the FTX saga.

The market reaction to that over the last month is interesting.

BTC January prices over the years

Even in the context of a risk on environment, the gains in BTC/USD since the start of the year are striking. It closed at 16,638.30 on January 1 and is trading at 22,924.00 as I write, a gain of 37.78% in just over three weeks. Clearly, the prospect of U.S. regulation of crypto is seen as a positive.

If nothing else, the FTX affair told us that for all of their available resources and paid researchers, some Wall Street people are as susceptible as the rest of us to being fooled by someone who tells them what they want to hear. Basically, they seem to understand that they need somebody to protect them from their own greed.

What matters to me, though, is not the politics of Bitcoin nor the greed of Wall Street. I am focused on my own greed, that of a trader for whom everything is judged in terms of its impact on the market. From that perspective, increased regulation, even of the lazy, clumsy kind, is a good thing for crypto, at least for now. It creates regulatory certainty and will enable more institutional players to get involved, providing support to the price of BTC. If BTC/USD is strong, other, smaller altcoins have a chance to survive, and that has been in serious doubt for six months or so. That will create a self-fulfilling bull market, where BTC strength gives life to other coins, and gains there lend more support to BTC, supporting other cryptocurrencies, etc.

BTC price

That could push the price a lot higher, but one of the side effects of the increased Wall Street interest in BTC is that the once untamed and unpredictable market is now much more similar to others in terms of its influences. Chart points, for example, now matter, and there are a couple of key ones coming up. As you can see, the fall of bitcoin has principally been in two steep drops, one from around $40k to around $30k, and then after bouncing around that level for a month or so, another to below $20k. That was followed by a bounce to just below $25k before another drop.

As simplistic as it may sound, both $25k and $30k are significant levels over the next few months. There seems to be nothing to stop a challenge of the first level, and that can be expected before long. A pause there, followed by another leg up to $30k then looks very likely, providing that there is no sudden, deep recession that would prompt a selloff of all risk assets.

There are many people in the crypto world who see any form of regulation as anathema and will tell you that the laws being proposed and enacted now around the country will kill the industry completely. If, however, you trust the evidence rather than political theory, the opposite seems to be true and, as regulations get enacted and begin to be enforced, BTC/USD can benefit. Further gains from here look possible as a result.

* In addition to contributing here, Martin Tillier works as Head of Research at the crypto platform SmartFI.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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Martin Tillier

Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.

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