Is 2024 Bitcoin’s Big Year?

Authored by Michael Washburn via The Epoch Times,

U.S. regulators’ pending approval of the spot Bitcoin exchange-traded fund (ETF), which could come as soon as next week, and severe criticisms of the Securities and Exchange Commission (SEC) for missteps in the prosecution of a Utah-based firm, DEBT Box, and for a general pattern of regulatory overreach, have combined to give the cryptocurrency market unprecedented momentum in 2024, financial and legal expert analysts have told The Epoch Times.

For Bitcoin, 2024 is off to a strong start. On Tuesday, Jan. 2, riding high on expectations of spot ETF approval, Bitcoin hit $45,000, before dipping modestly to $44,000 today.

The severe risks that regulators associate with Bitcoin and other cryptocurrencies are real indeed (though most importantly, not unique to bitcoin or any other cryptocurrency), and criminals make wide use of Bitcoin scams to rip off unsophisticated investors, often older people who did not grow up with social media and online trading platforms. The latter problem is so acute that police in U.S. states routinely issue warnings about the dangers of investing in crypto online. Crypto is still a highly volatile asset, and the value of a digital portfolio can disappear virtually overnight.

The conviction in November of former FTX CEO Sam Bankman-Fried on all the felony charges he faced, after just a few hours of jury deliberations, has also not helped the sector’s image.

Yet a confluence of factors is still likely to make 2024 the most decisive and transformative year thus far for the cryptocurrency, analysts say. Market players are fed up with SEC Chair Gary Gensler’s war on digital innovation and failure to adhere to legal protocols as he goes about trying to control an industry he has blasted as “rife with fraud, rife with hucksters,” the analysts say.

The financial markets have taken note of Bitcoin’s performance in the first days of the new year. For much of 2022 and 2023, Bitcoin struggled to emerge from the “crypto winter” and the fallout from the collapse of FTX and other exchanges, and its price vacillated between $20,000 and $30,000.

Weighing Spot Bitcoin ETFs

Digital assets are increasingly in vogue at prominent financial institutions. Many of them, such as BlackRock, the world’s largest asset manager, have gone from a view of Bitcoin and other cryptocurrencies largely consistent with that of Mr. Gensler, to finding value in digital money and seeking to parlay that value into high returns for investors.

BlackRock CEO Larry Fink is among those whose view of Bitcoin has undergone a radical shift.

In October, a former BlackRock managing director said that his former boss, Mr. Fink, and U.S. financial regulators largely agreed on the inevitability of spot Bitcoin ETF adoption, and it was just a question of when.

Despite the slight dip, much of the market still believes the long-awaited approval is finally at hand, and is bullish. John Deaton, a lawyer who has represented cryptocurrencies platforms in legal battles with the SEC, does not credit such rumors of a regulatory refusal, and sees many factors coming together to make 2024 a huge year.

“I believe Bitcoin will do well between 2024 and 2025. When you combine the approval of a spot ETF, with the halving in April, along with an election year where you know the Fed will attempt to manipulate the economy, lower interest rates, and buy assets through quantitative easing, it’s a perfect storm for price appreciation,” Mr. Deaton told The Epoch Times.

“Halving” refers to a process of slashing by 50 percent the payment for mining Bitcoin, to help keep it scarce and retain its value.

As the week came to a close, CoinTelegraph reports that 19b-4 amendments were filed for spot BTC ETF applications from asset managers BlackRock, Valkyrie, Grayscale, Bitwise, Hashdex, ARK 21Shares, Invesco Galaxy, Fidelity, Franklin Templeton, VanEck and WisdomTree. 

The filings are one of the last stages in the SEC approval process, but S-1 documents must be completed in order for U.S. exchanges to begin listing shares of investment securities with direct exposure to crypto.

Some experts have speculated that final approval for the spot Bitcoin ETFs will drop before Jan. 10 – the deadline for an offering from ARK Invest and 21Shares. A potential approval could mean greater adoption of crypto in the U.S. and worldwide.

There’s the first 19b-4 amendment filing! Here we go. https://t.co/dz01aborw7

— James Seyffart (@JSeyff) January 5, 2024

Meanwhile, in a post on X (formerly Twitter), Bloomberg ETF analyst Eric Balchunas showed optimism that the SEC would approve a Bitcoin ETF by the start of next week:

“Yeah it’s basically done. Latest I’m hearing (from multiple sources) that final S-1s are due 8am on Monday as SEC is trying to line everyone up for Jan 11th launch.”

DEBT Box Fiasco

The cryptocurrency industry has long had a tense, contentious relationship with SEC Chair Mr. Gensler, who has made no secret of his loathing of cryptocurrency and the firms that mine and trade crypto tokens.

In an interview with Bloomberg Television last July, Mr. Gensler said, “A lot of investors should be aware it’s not only a highly speculative asset class, it’s also one that they currently should not assume that they’re getting the protections of the securities laws, even though the securities laws apply to many of those tokens.

“The platforms often are commingling and trading against you and have market makers that are on the other side of your trades … Right now, this is a field rife with fraud, rife with hucksters. There are good faith actors as well, but there are far too many that aren’t,” Mr. Gensler continued.

As part of his crusade to stamp out such fraud, Mr. Gensler has gone after crypto exchanges of many sizes and profiles, and SEC enforcement has taken a noticeably harsher tone.

In August 2023, the SEC announced an enforcement action against Digital Licensing Inc., a Draper, Utah-based firm doing business under the name DEBT Box, and 18 of its executives and personnel. The SEC’s complaint charged the company with raising about $50 million, along with unknown amounts of Bitcoin and Ether, with fraudulent claims on social media that investors would make substantial profits investing in tokens generated through crypto mining. According to the complaint, the tokens pitched to investors were the results not of mining but simply of DEBT Box’s ordinary blockchain code.

U.S. Securities and Exchange Commission chairman Gary Gensler testifies during a Senate Banking Committee hearing on Capitol Hill in Washington on Sept. 12, 2023.(Drew Angerer/Getty Images)

In its zeal to prosecute DEBT Box, the SEC went so far as to make emergency applications for a temporary restraining order and seizure of the firm’s assets, on the grounds that such steps were necessary to stop DEBT Box from transferring investors’ money to offshore accounts.

But DEBT Box executives vigorously challenged the claims that the SEC put forth to justify seizing the company’s assets, and U.S. District Judge Robert Shelby agreed that the regulator had exceeded its mandate and made materially false claims.

On Dec. 21, Gurbir Grewal, head of the SEC’s enforcement division, took the highly unusual step of apologizing for his agency’s conduct.

“I fully appreciate the extraordinary responsibility entrusted to the SEC when enforcing federal securities laws. … I understand that the division fell short of these standards in this case, and I apologize for that shortfall,” Mr. Grewal said.

The SEC’s PR Nightmare

The SEC’s admission that it behaved in an arbitrary manner more befitting an authoritarian regime than a financial agency operating under Constitutional strictures affirms what many have long believed about the SEC and its orientation under Mr. Gensler.

“The SEC only gave a half-hearted apology because they had no choice. The federal judge is considering issuing sanctions against the lawyers at the SEC. That is how bad their behavior and conduct in these crypto cases has become,” Mr. Deaton told The Epoch Times.

In Mr. Deaton’s view, the severe blowback directed at the SEC’s overreach in this matter is not surprising given the regulators’ failed efforts to prosecute Ripple Labs on the grounds that its crypto token, XRP, was a security, and that Ripple had engaged in the unlicensed sale of a product that fell under the SEC’s purview.

Though the SEC may not have made material misstatements of fact in seeking to prosecute Ripple, the SEC’s arguments in the case, which Judge Analise Torres found to be invalid in a 34-page ruling issued on July 13, 2023, were so deeply flawed that it was clear the regulator was operating without any grasp of legal nuance or the bounds of its mandate, Mr. Deaton believes.

“The federal judge in the Ripple case stated that the lawyers at the SEC actually ‘lack faithful allegiance to the law’ and only care about advancing their own self-serving agenda,” Mr. Deaton said.

Mr. Deaton then called the DEBT Box case an “egregious” instance of overreach where a government agency felt entitled to seize the assets of private citizens without a trial, and without an opportunity to face the accusers and present counter-arguments in court, or any of the other niceties of due process.

“This was a temporary restraining order where the defendant was not present. It’s an ex parte hearing with the judge, and they intentionally misled the judge to believe that DEBT Box was closing bank accounts and moving money overseas, and if the judge didn’t freeze all the assets, innocent people would lose their funds,” Mr. Deaton said.

“Based on that, the judge froze the accounts and DEBT Box employees’ payroll checks bounced, which meant people couldn’t pay their mortgages and other bills. What the SEC did was criminal and they should be punished,” he continued.

U.S. Securities and Exchange Commission building in Washington on Nov. 13, 2023. (Madalina Vasiliu/The Epoch Times)

Chronic Failures

This is not the first case in which the SEC’s conduct has come in for harsh criticism. Mr. Deaton mentioned the case of Stamford, Connecticut-based Grayscale Investments in this connection, noting that a U.S. appeals court found the SEC to have acted arbitrarily in its zeal to close the firm down.

The extent of the agency’s wrongdoing in the DEBT Box and other matters does not redound to the SEC’s credit, and the opprobrium now directed at the regulator cuts across partisan lines, he observed.

No one can claim that a Republican appointee hampered the SEC’s campaign against Ripple, and that the regulator might have fared better in a legal proceeding under the oversight of a Democrat. After all, Judge Torres is anything but a Trump supporter, said Mr. Deaton, who does not expect Mr. Gensler to retain his position as SEC bigwig indefinitely.

“Judge Torres is a lifelong Democrat appointed by President Obama, and all she did was follow and apply the law. Gary Gensler is a bad faith regulator, and no other SEC chair has lost so much in the court system. Democrats are realizing that he is a political liability,” Mr. Deaton said.

Broad Acceptance

Adding further momentum to Bitcoin’s rise, regulators outside the United States increasingly view cryptocurrencies as a hedge against rampant inflation and a means for non-institutional investors—in other words, ordinary citizens—to find some prosperity in tumultuous times.

Josip Putarek, a crypto analyst at the gaming platform dappGambl, agreed that Bitcoin’s strong start in 2024 is largely a function of U.S. regulators’ imminent spot Bitcoin ETF approval, and suggested that other digital currencies may ride the same wave.

“All eyes are on Bitcoin right now, and if it performs well, the money inflow to the crypto market may shift to Ethereum and other altcoins,” Mr. Putarek told The Epoch Times.

“Approval of a spot Bitcoin ETF will drastically change the game, as it will open up inflows to Bitcoin from institutions, thus creating constant buy pressure,” he said.

Citing the example of gold-based exchange-traded funds, Mr. Putarek suggested the spot Bitcoin ETF’s performance may be comparable.

“Looking at gold, that ETF has multiplied its market capitalization several times since its launch. In addition, gold, which was in the $400 band in 2004, showed a growth performance of 370% in six years,” he said.

But an even more important driver may be the rapidity with which various governments are turning to digital currencies.

Latin America and Hong Kong

“El Salvador was the first country to officially recognize Bitcoin as a payment unit in 2021, and many other countries will follow in the future. It’s just a matter of time. In my opinion, Argentina and Hong Kong could be among the first countries to join El Salvador in the journey,” Mr. Putarek said.

Mr. Putarek cited the chronic inflation crippling Argentina’s markets as a reason why its newly elected president, Javier Milei, has adopted forceful pro-crypto rhetoric and drawn comparison to El Salvador’s president, Nayib Bukele.

As for Hong Kong, the jurisdiction combines a highly tech-savvy, pro-crypto bent with a determination to adhere to the inter-governmental Financial Action Task Force’s (FATF) international standards aimed at curbing the fraud and scams still associated with crypto, Mr. Putarek said. Hong Kong has updated its Anti-Money Laundering (AML) Ordinance to be compliant with FATF Recommendation 15, requiring firms to follow strict AML and anti-terrorist-financing protocols and operate under a license from the Hong Kong Securities and Futures Commission. Hong Kong has been a member of the FATF, which targets money laundering and terrorist financing, since 1991.

In agreement on the direction of Argentina under Mr. Milei is Silvina Moschini, an analyst and the CEO of Unicorns Inc.

“President-elect Milei demonstrates a noteworthy commitment to financial advancement, particularly in his alignment with crypto foundational values, advocating for minimal state intervention and free markets. This creates a promising landscape for digital assets in Argentina, suggesting a favorable environment for the tokenization of assets and broader financial innovation in the country,” Ms. Moschini told The Epoch Times.

The appeal of crypto as a hedge in the midst of Argentina’s economic chaos has not diminished, Ms. Moschini believes.

“Amid the economic challenges in Argentina, characterized by peso devaluation and high inflation, crypto adoption has surged as a practical solution for individuals seeking alternatives to navigate these issues,” she said.

Ms. Moschini added that she expects the trend to gather force in tandem with the peso’s devaluation.

People walk past a bank branch decorated with images of old Argentine peso bills, in Buenos Aires, Argentina, on Sept. 26, 2018. Argentina’s year on year inflation hit a staggering 142 percent during election week. (Eitan Abramovich/AFP via Getty Images)

A Complex Environment

At the moment, the headwinds in the United States and other countries may be favorable to broader adoption of crypto. At the same time, many observers are sober about the persistence of fraud and scams, and the continuing disrepute that they impart to digital asset trading and investing.

It is important not to read too deeply into El Salvador’s decision to recognize Bitcoin as legal tender. After all, El Salvador is a small country with a set of economic circumstances that hardly apply elsewhere. When compared with traditional, or fiat, currencies, digital money is still at a disadvantage.

“Crypto lacks the straightforwardness and ease of use that regular currencies bring to the market. Merchants aren’t supporting crypto. Crypto can be volatile, and coupled with its scaling issues, merchants are left with no choice but to deny crypto as a form of payment,” Laura K. Inamedinova, a partner at Dubai-based Illuminati Capital, told The Epoch Times.

“Recently, we’ve seen payment providers like Mastercard and Visa support different crypto projects like Coinbase, Taurus, Circle, and others, but that’s not as widespread as we might want,” she added.

In Ms. Inamedinova’s view, raising public awareness about the risks as well as the potential of digital currencies is crucial.

“There’s still a large stigma around crypto being a scam, which is why educating the public is so important,” she said.

Here is one more reason why the financial markets are at such a critical juncture, with regulatory approval of the spot Bitcoin ETF expected as early as next week.

“In a case like this, spot ETFs could work in boosting the credibility of the Web3 space, but that’s not all. Crypto as a financial instrument needs to be simplified for the public,” Ms. Inadmedinova continued.

The challenges and dangers are real but she views the market with guarded optimism. The Bitcoin halving expected in April, the pending rollout of the spot ETF, and various private initiatives will drive a bull market in 2024 and beyond, she believes.

The Epoch Times has reached out to the SEC for comment.