Week 16, 2023 - Weekly Market Outlook

Introduction

The crypto markets never sleep. It was once again a busy week ahead. This week, several important events occurred, including SEC Chair Gary Gensler testifying in front of the House Financial Services Committee. The SEC charged crypto asset trading platform Bittrex Inc. and its co-founder and former CEO William Shihara for operating an unregistered national securities exchange, broker, and clearing agency. This article delves into the recent charges, Gensler testifying, DeFi market data and some market insights.

Gary Gensler Grilling at Capitol Hill

Gary Gensler faced tough questions from the House Financial Services Committee about his approach to the crypto industry. Gensler has been strict with crypto businesses; many think he is too harsh.

Gensler believes that the crypto industry must follow the rules of Congress and the courts. Recently, the SEC took action against the crypto exchange Bittrex. Under Gensler, the SEC has made many decisions against crypto businesses, especially after the problems with the FTX exchange.

Some people in the US government and the crypto industry do not like Gensler's strict attitude towards crypto, and they say he is not clear about how the rules apply to crypto. During the hearing, some politicians asked Gensler if Ether and Bitcoin are securities, meaning they are controlled by the SEC. Gensler did not give a clear answer but has said before that he thinks all crypto assets except Bitcoin are securities.

During the hearing, Republican Congressman Patrick McHenry accused Gensler of "weaponizing" the SEC by punishing digital asset firms for allegedly not adhering to the law, even when they were unaware it applied to them. McHenry later demanded that Gensler answer the committee's questions honestly and clearly, or they would be left with no choice but to pursue all avenues to compel the information or documents they needed.

Congresswoman Maxine Waters criticized the committee for not focusing on the collapse of Silicon Valley Bank and Signature Bank or the US housing crisis. Instead, she accused Republicans of using the hearing to scrutinize the SEC.

Representative Ann Wagner voiced concerns about the SEC's "overly aggressive agenda" that rushed through rulemakings at a frantic pace, the likes of which hadn't been seen since the response to the 2008 financial crisis.

In contrast, Congressman Brad Sherman praised Gensler for standing up to "crypto bro billionaires," stating that multibillion-dollar frauds were just the beginning of the societal harm they could cause.

Gensler acknowledged the transformative potential of artificial intelligence, stating that it was more significant than cryptocurrencies. He defended the SEC's rules, emphasizing their importance in maintaining market stability.

A contentious point in the hearing was the classification of Ether as a commodity or security, with McHenry pressing Gensler for clarification. Gensler sidestepped the question, stating he was speaking generically and not about specific facts or circumstances.

Gensler also faced scrutiny over the 53 rules he has proposed in two years, compared to his predecessor Mary Jo White's 23. However, he maintained that the SEC could bring crypto issuers and intermediaries into compliance with investor protection and market integrity frameworks.

The hearing showed that some politicians support Gensler's strict approach to crypto, while others think it distracts from more important problems. Gensler has made many new rules since his last appearance before the committee in 2021, which has upset some people on Wall Street.

Gensler thinks existing laws should apply to most crypto assets, so there may not be new rules specifically for crypto. The SEC has acted more actively against crypto businesses that do not follow the rules. Some politicians think the current rules do not work well for crypto businesses and that following them could hurt these companies.

SEC Lawsuit against Bittrex

The U.S. Securities and Exchange Commission (SEC) recently filed a lawsuit against cryptocurrency exchange Bittrex, alleging that the platform violated federal laws by operating as an unregistered securities exchange, broker, and clearing agency.

According to the SEC, Bittrex worked with crypto issuers to delete "problematic statements" that could have caught the regulator's attention, such as price predictions and implications of an "expectation of profit." The SEC also claims that Bittrex should have registered as an exchange, clearing agency, and broker, as it provided services of all three types of entities.

The SEC's lawsuit against Bittrex alleges that the platform failed to register with the commission as an exchange, broker-dealer, or clearing agency—a requirement under the Securities Exchange Act of 1934. To build its case, the SEC has singled out six cryptocurrencies as "crypto asset securities": OMG Network (OMG), Dash (DASH), Monolith (TKN), Naga (NGC), Real Estate Protocol (IHT), and Algorand (ALGO).

SEC Enforcement Director Gurbir Grewal said the lawsuit against Bittrex "should send a message to other non-compliant crypto market intermediaries." This implies that other unregistered platforms could face similar legal actions.

While Ethereum is not directly implicated in the SEC's lawsuit against Bittrex, the broader implications of this development raise questions about the platform's potential challenges in the future. Ethereum has long been popular for initial coin offerings (ICOs) due to its smart contract capabilities. However, as the SEC cracks down on ICOs and seeks to classify certain tokens as securities, Ethereum-based projects could face increased scrutiny and regulation.

If the SEC were to determine that Ethereum-based tokens offered in ICOs are securities, the projects behind these tokens would be required to comply with federal securities laws. This could lead to increased costs and regulatory burdens for Ethereum-based projects, potentially stifling innovation in the space.

Moreover, if the SEC were to pursue enforcement actions against Ethereum-based projects for non-compliance with securities laws, it could damage the platform's reputation and deter future projects from utilizing Ethereum for their ICOs.

Crypto Market data

After last week's bullish breakout, Bitcoin has retraced to a significant level. $28k-$29k Is an essential level for Bitcoin as it is a retest of our previous range. If we are to remain bullish, this level must hold. Lose this level, and I think we will move to $25k. From a technical perspective buying $28k-$29k is an amazing opportunity. My biggest issue with buying here is that everybody and their grandmother wants to buy this level, and I don't particularly like buying with the masses. The second issue with this trade is that bull markets don't give you perfect entries, which is a textbook-perfect entry. I'm psyoping myself out of buying, and I may regret it, but I would much rather wait to buy $25k.

Last week, Ethereum was a much more exciting chart than BTC. This week my thoughts have changed. This is just an observation, but Ethereum is replicating last year's price action. It breaks out from its range and then deviates back into its range. Now what Ethereum does is entirely dependent on what Bitcoin does. If Bitcoin decides to hold support and move higher, I believe Ethereum will follow. I recommend staying away from Ethereum until Bitcoin shows the direction.

Is this the Top?

I'm not someone that likes to call tops or bottoms. If you can call a top or bottom, you must have a four-leaf clover somewhere. The better strategy is to capture the meat of the move.

I could be completely wrong, but we have seen a yearly high on specific projects. My main reasoning is the froth being created in this market.

A pepe (PEPE) token launched Sunday ran over 21,000% in the past five days, raking in $30 million in trading volumes on Uniswap and reaching a market capitalization of as high as $150 million.

The last time such a meme coin went to the moon was in November 2021, and Shiba Inu went up over 30,000%. A new generation of millionaires was born; the same has happened with this Pepe coin.

A Pepe coin is the most searched coin on coingecko. Earlier this week, the top trending searches were filled with only meme coins before we had our pullback. This shows so much froth in the market and makes me believe we could have topped. While Bitcoin still holds support, and if it maintains support and moves higher, this whole paragraph doesn't matter as much. But at least you learned that every time there's a lot of froth in the market, it's a good time to secure profits

The DeFi Sector and the rollups

With Ethereum losing momentum this week, it also means that DeFi is weak. We have a sea of red for DeFi projects, with Arbitrum and Optimism being the big gainers of this week.

Arbitrum is close to reaching its November 2021 TVL high. This is great to see, as on-chain participation for Arbitrum is back to its old levels. The issue is that a lot of unknown projects have had parabolic gains. This goes back to my argument that the market is filled with froth.

Optimism's TVL is also quite close to reaching its ATH. Optimism has less than 1 Billion in TVL. This seems very interesting to me as its biggest competitor, Arbitrum, has over 2 Billion in TVL. Is Optimism currently undervalued? Regarding tech, both of them are very similar. The big difference in TVL was due to the airdrop hype. Now that the Arbitrum hype is dying down, both TVLs could converge towards each other.

The Narrative

There isn’t a narrative that currently has any mainstream attention. For some, this is a bad thing. For me, this is the perfect scenario to find a sector within the space that could do well in the future.

A sector that has not gotten much love is Real World Assets (RWA). RWA refers to tokenizing traditional financial instruments of value, such as stocks, precious metals and credit. RWAs are a vital building block for crypto’s long-term vision of “the tokenization of everything”.

RWA could be the next sector within the crypto space to be the next narrative, and it could take some time before it is recognized as the next narrative. In the meantime, to learn more about RWA, check out our articles about RWA.

Best and worst performers

You would expect Pepe to make this list, and it didn't make this list because it hasn't been on Coingecko for seven days. Pepe is the top gainer of this week. Once again, cracking our top gainer list is Radix. Radix is a layer one blockchain that is getting some love. A huge reason why it made the list this week is that it got listed on Kucoin. When a project gets listed on a top 10 exchange, it rallies hard.

There isn't any narrative when it comes to the losers. Seeing Kaspa, Stacks and Conflux on here is quite surprising, as all these projects before this week outperformed the market. If BTC holds support, then these three projects will rally hard. This could be the pullback that you had been waiting for.

The week ahead

Bitcoin is at a critical support level. For bulls, this is the time to hold the line. If bears want to drive it lower, now is the time. This is the first significant level of support for Bitcoin since March.

There are two possible scenarios that I can see playing out.

1. We bounce here at 28.5k. Bouncing here would maintain a bullish market structure and further indicate that we may have bottomed out in November 2022. If we hold $28.5k, we should go to $32k.
2. It doesn't bounce at $28.5k. If we lose this level, it's not worth bidding Bitcoin till about $25k or until it reclaims the level. $25k would be the biggest test for me there. That's where I plan to bid, no matter the noise and sentiment on Twitter. We will likely trade back to November's bottom if we lose that critical level.

These are my two base cases for Bitcoin. Anything can change in a matter of seconds in this space. So be prepared for everything. Have a plan and execute your plan. Do not feel FOMO if we trade higher and you do not buy. The market is always there, and we are open 24/7, 365 days a year.