Prosecutors in the United States filed criminal charges against BitMEX, accusing it of violating the federal Bank Secrecy Act.
The CFTC has been investigating one of the biggest derivatives exchanges for some years now. Still, the effect of this news on the prices of digital currencies is expected to be bearish but only in the short term.
It will actually be bullish in both medium and long term and “likely be a boon for other regulated futures exchanges that offer significant leverage. Gambling is gambling,” said Bill Barhydt, co-founder & CEO at Abra.
But while regulation will help the market at large, it may not be such a good thing for the decentralized finance (DeFi) sector.
I hate to be a doomer, but this is incredibly bearish for any #DeFi type protocol. If you don't think the US is looking at exchanges or dAPPs that are unregulated doing hundreds of millions of volume per day… you're being very naive.
— Flood [BitMEX] (@ThinkingUSD) October 1, 2020
Time for DeFi Providers to Wake Up
According to Barhydt, it is actually a “warning shot” for DeFi service providers who think registrations don’t apply to them, “That’s pure nonsense. Lawyer up now.”
With the DOJ talking about the BitMEX co-funders to “soon learn the price of alleged crimes,” which will be paid in “fines, restitution, and federal prison time,” — it’s time for DeFi providers to wake up.
“DeFi services are not sufficiently decentralized today to have no central off switch. That means the companies behind them are at risk. Oracles are another problem…Set your alarms for the moment of truth,” Barhydt said.
Given that DeFi has the highest beta, “flight to safety” is another reason why the BitMEX incident is not bullish for DeFi, said trader and economist Alex Kruger.
Moreover, while the authorities are going after managers individually over the criminal allegations, for the market, smart contract creators and promoters won’t be far fetched, regardless if it is even true, he added. And what the market thinks matters.
A Small Winter for DeFi
Over the past few months, the DeFi sector grew immensely, from about $1 billion in mid-June to $14.6 billion earlier this week, as per Debank.
For the past few weeks, DeFi tokens have been cooling down, with yields significantly lower than they were a month ago.
While the impact of the news on the price of Bitcoin and altcoin might be over, we could see “relative weakness across DeFi.”
As seen in the past 24 hours, the cryptos lost 4% to 12% compared to the DeFi ones, which are down 10% to 25%.
As we reported, a small DeFi winter has also been expected.
“Most DeFi bluechips trade like classic bubbles bursting,” said trader Qiao Wang who sees it more like the spring 2013 bubble, meaning this won’t be a multi-year nuclear winter, because of the strong and improving fundamentals, total market cap of these tokens still small, and more brrrr likely to come next year.
“2021 will be great, IMO,” he added.