February 18th, 2025

Looking at the global market dynamics: Cryptocurrencies, regulatory challenges, and the potential for market abuse

The intertwining of technology with traditional markets has brought both innovation and complexity. As we witnessed in recent market activities, the holiday lull in the US did not stop the wheels of commerce from turning elsewhere.

Futures markets traded in the green, with the Dow, S&P, and Nasdaq futures showing marginal gains, signalling perhaps a cautious optimism or at least a stable pause in a year filled with volatility. However, beneath this surface calm, significant shifts are occurring in regulatory practices and market behaviours, particularly in the realm of cryptocurrencies.

The US financial scene was somewhat muted due to the holiday, but Federal Reserve Governor Michelle Bowman’s comments provided insight into the central bank’s ongoing thought processes. She highlighted a nuanced view of the US economy, acknowledging that while inflation might decline, the risks of an uptick remain, and she needs more assurance before advocating for rate cuts.

This perspective is crucial as it affects not just domestic markets but global ones, with the US dollar index showing a slight decline and gold prices rising, possibly reflecting bets on inflation or a softening dollar.

However, the real intrigue lies in the developments in Asia and Latin America, where the integration of cryptocurrencies into mainstream finance is taking bold steps forward but also encountering significant hurdles.

Thailand’s leap into tokenised securities

Thailand’s Securities and Exchange Commission (SEC) has announced its embrace of crypto, setting the stage for trading in tokenised securities. This move is a testament to the country’s forward-thinking approach to finance, aiming to leverage blockchain technology’s security and transparency to modernise its market infrastructure.

Tokenisation, the process of representing physical or traditional securities in digital form on a blockchain, promises to enhance market liquidity, reduce costs, and increase accessibility. However, this step also comes with its challenges, including ensuring investor protection, navigating regulatory compliance, and managing the inherent volatility of crypto-assets.

The Thai SEC’s initiative could set a precedent for other nations contemplating similar moves, providing a model for how regulatory bodies can balance innovation with oversight.

South Korea’s Upbit in the regulatory crosshairs

In contrast, South Korea’s largest cryptocurrency exchange, Upbit, finds itself under scrutiny. The Financial Services Commission has uncovered over 700,000 violations concerning customer verification, a cornerstone of anti-money laundering efforts. This revelation not only questions Upbit’s operational integrity but also highlights the broader issue of regulatory compliance within the crypto industry.

The swift response from Kim Byoung-hwan, promising a quick conclusion to the case, underscores the urgency with which regulators worldwide are tackling these issues. The outcome of this case could influence how other countries approach similar regulatory challenges, potentially setting stricter standards or leading to more robust compliance frameworks across the industry.

The Argentine scandal: A cautionary tale

The situation in Argentina involving President Javier Milei adds another layer to this narrative. Milei’s promotion of the cryptocurrency $LIBRA on social media, followed by its rapid collapse, underscores the risks of high-profile endorsements in the crypto world. Here, we see not just a market fluctuation but potential market abuse where regulatory oversight might be lacking.

The allegations of fraud filed against Milei highlight the precarious balance between advocating for innovation and ensuring market integrity. The $LIBRA incident, where investors lost millions following the president’s post and subsequent retraction, serves as a stark reminder of the volatility and potential for manipulation in cryptocurrency markets.

This case brings to light several critical points.

Firstly, the power of social media in influencing market behaviour cannot be underestimated. When leaders with significant followings endorse financial products, especially those as volatile as cryptocurrencies, they wield immense influence over market dynamics.

Secondly, it calls for a reevaluation of how public figures interact with financial markets. Should there be clearer guidelines or outright bans on such endorsements to prevent similar occurrences?

Lastly, it emphasises the need for robust regulatory mechanisms that can adapt to the speed and anonymity that blockchains offer, ensuring that the enthusiasm for crypto does not lead to platforms for fraud.

Looking forward

As we stand at this juncture, the crypto landscape is clearly at a crossroads. On one hand, there’s a push towards integration into traditional finance systems with initiatives like tokenised securities in Thailand. On the other, there’s the cautionary tale of regulatory lapses and potential malfeasance in South Korea and Argentina.

The path forward involves a delicate balance. Regulators must foster innovation without stifling it, providing clear guidelines that protect investors while allowing the market to explore new financial instruments. The industry needs to mature, adopting best practices in compliance and transparency. Investors, too, must become more discerning, understanding the risks associated with these new asset classes.

In conclusion, while the integration of cryptocurrencies into global financial systems offers unprecedented opportunities for growth and democratisation of finance, it also presents significant risks. The cases of Thailand, South Korea, and Argentina illuminate the spectrum of possibilities and pitfalls.

As we navigate this new financial frontier, the lessons learned from these scenarios will be invaluable. They remind us that with great innovation comes the responsibility of great oversight, ensuring that the future of finance is not just innovative but also secure and equitable for all participants.

Source: https://e27.co/looking-at-the-global-market-dynamics-cryptocurrencies-regulatory-challenges-and-the-potential-for-market-abuse-20250218/

Anndy Lian

Anndy Lian is an early blockchain adopter and experienced serial entrepreneur who is known for his work in the government sector. He is a best selling book author- “NFT: From Zero to Hero” and “Blockchain Revolution 2030”.

Currently, he is appointed as the Chief Digital Advisor at Mongolia Productivity Organization, championing national digitization. Prior to his current appointments, he was the Chairman of BigONE Exchange, a global top 30 ranked crypto spot exchange and was also the Advisory Board Member for Hyundai DAC, the blockchain arm of South Korea’s largest car manufacturer Hyundai Motor Group. Lian played a pivotal role as the Blockchain Advisor for Asian Productivity Organisation (APO), an intergovernmental organization committed to improving productivity in the Asia-Pacific region.

An avid supporter of incubating start-ups, Anndy has also been a private investor for the past eight years. With a growth investment mindset, Anndy strategically demonstrates this in the companies he chooses to be involved with. He believes that what he is doing through blockchain technology currently will revolutionise and redefine traditional businesses. He also believes that the blockchain industry has to be “redecentralised”.

www.anndy.com

j j j

February 13th, 2025

Ethereum Layer 2: A Forensic Analysis of Growth, Challenges, and Economic Impact

Key Points:

– Ethereum Spot ETF Performance: Ethereum spot ETFs saw significant inflows last week, with BlackRock’s ETHA and Fidelity’s FETH leading with $287 million and $97.28 million respectively, boosting their total assets to $4.4 billion and $1.51 billion.
– Layer 2 Controversy: The surge in ETF inflows hasn’t directly boosted Ethereum’s market performance. The Ethereum community criticizes Layer 2 networks for being “parasitic”, causing inflation by profiting from transaction fees while relying on Ethereum’s security.
– Layer 2 Sequencer Profits: Layer 2 networks like Arbitrum earn substantial profits from sequencer operations, highlighted by a $1.04 million daily revenue on February 4, with minimal cost to Ethereum, sparking debates over centralization and profit motives.
– Decentralization Challenges: Layer 2’s struggle with decentralizing sequencers is noted, with most still controlled by development teams. This central control is a significant point of contention, as sequencers are lucrative due to transaction fees, MEV, and interest.
– Base’s Sequencer Revenue: Base, part of the Ethereum network, has been accused of transferring all sequencer gains to Coinbase, with little transparency on how these profits are handled, leading to community suspicion about ETH sales.
– Vitalik’s Response: Vitalik Buterin has acknowledged the issues surrounding Layer 2’s economic models, calling for these networks to contribute back to Ethereum to ensure ETH’s value doesn’t diminish in a Layer 2-dominated ecosystem.

Ethereum Spot ETFs Surge, But Layer 2 Controversy Clouds Market Optimism

Ethereum spot ETFs saw a net inflow of $420 million last week, and all nine ETFs had no net outflow. Among them, the net inflow of BlackRock’s ETHA reached 287 million U.S. dollars, allowing ETHA to exceed 4.4 billion U.S. dollars. Fidelity’s FETH also received a net inflow of 97.28 million U.S. dollars, reaching 1.51 billion U.S. dollars thus far. However, despite the strong growth in capital inflows from Ethereum Spot ETFs, they have not significantly contributed to Ethereum’s market performance or quelled many controversies in the Ethereum ecosystem, especially regarding the Layer 2 operating model.

Recently, many netizens have criticised on “X” that Layer 2 network is actually “parasitic” on Ethereum, becoming the main source of its inflation. While Layer 2 brings scalability and efficiency to Ethereum, the economic model and operational mechanisms behind it are increasingly being questioned. This analysis combines current market data with community voices to take a look at the current Layer 2 controversy within the Ethereum ecosystem. Or is it actually Ethereum layer 2 or bad actors?

In the current cycle, the performance of ETH has lagged significantly behind the market as a whole, and some people attribute it to the heavy load of layer 2’s and some blame the Ethereum Foundation (EF)! This weekend, Layer 2’s became the object of community criticism. On February 9, Andre Cronje, co-founder of Sonic, posted on X, expressed significant public protest that Layer 2’s made a lot of money by continuing to sell sequencer earnings and had become a parasite on Ethereum. “Becoming Layer 2 – running a centralised sorting machine – charging a fee of $120 million – paying Ethereum another $10 million for DA and security – then selling $110 million for a profit – then claiming to be the “Ethereum Alliance.” I don’t understand how the Ethereum community convinced itself to accept this logic.Layer2 has become the main cause of Ethereum inflation again.”

Explaining Sorters & Collators Layer 2 – Layer 2’s Sorter Gains

Layer 2’s sequencer revenue controversy has become a commonplace topic. The collator has an indispensable role within Layer 2 architecture, and its main utility is as follows:

Collect user transactions and package them into batches in a specific order.
Provide users with instant transaction confirmation before the transaction is finally on the chain.
Submission of transaction data compression to Layer 1 to reduce gas costs.

In Layer2’s decentralised vision, the decentralisation of the sorter operation is an essential step. However, the reality is that almost all of Layer2’s collators are run by the development team, which is one of the biggest criticisms about Layer 2’s.

Why are Layer 2’s unable to complete the decentralisation of the sorter?

There are certain technical and operational reasons for this, but another big reason that cannot be ignored is that in the real world, sorting machines are a very profitable business. The primary sources of direct revenue from the operation of the sorting machine include: 1) transaction fee differences; 2) MEV capture; 3) Funds deposit interest.

DeepSeek provides Oracle on the other actors to blame and the following: How profitable is business?

We can take a cursory look through data from a single day on February 4 (Arbitrum) On February 4, because of the collective volatility of the market, Arbitrum charged $1.04 million at the Layer 2 level in a single day, while paying Layer 1 a final settlement cost of less than $20,000 – meaning that in just one day, the chain made millions of dollars in gains from trading fee spreads. (DeepSeek, 2025)

A look at Base again!

First with Winter Mute now on Layer 2. As the most active Layer 2 network on the Ethereum mainnet ecosystem, Base has long been at the centre of relevant public opinion. As the debate about the benefits of Layer 2 sorters intensified, the community began to take aim at Base. Lucidity CIO ,Mr. Santisa took the lead on X, accusing Base of transferring all the sequencer gains to Coinbase since the launch of its own network, and there is reason to suspect that this ETH has definitely been sold off. “Since its launch, BASE has been transferring sorter fees to Coinbase. We don’t know if they sold it, but we do know that they didn’t deploy the funds on Base or keep them on-chain. In the absence of further transparency, we can reasonably assume that they have sold off. They don’t agree with Ethereum’s stance.” (Santisa, 2025)

The figure shows the Base sorter income address

(0xEc8103eb573150cB92f8AF612e0072843db2295F) Close analysis, combined with Coinbase’s earnings data was used to analyse whether Base had sold the ETH in question. Thorough post mortem analysis and on-chain data showed that Base had earned significant income through sorters within the past 12 months. Over $100 million in revenue, with a profit margin of over 90%, all of these fees have been transferred to the exchange via the Base-Ethereum-Coinbase network path. According to Coinbase’s public earnings data, as of June 30, 2023 Coinbase held about $230 million in ETH on its balance sheet, when the price of ETH was $1,934, which means Coinbase held 118,924 ETH; As of September 30, 2024, Coinbase held 119696 ETH on its balance sheet. Suspicious indeed.

Suspiciously since the launch of Base, Coinbase only added 772 ETH to its balance sheet, so where did the hundreds of millions of dollars of Base sequencer revenue go? There seems to be only one answer! One might question that Base’s revenue, as a (notionally) independent network, and should not be counted on Coinbase’s balance sheet, this is unreasonable, as Coinbase has highlighted Base’s increased revenue in multiple financial statements. “The Ethereum community is proud of their Layer 2, but what Layer 2 does every day is transfer fee revenue from Layer 2 to Layer 1 and then to Coinbase to sell. This is the frontrunner of the Ethereum ecosystem. The Ethereum community wake up.” Base (Coinbase) on SOL with wintermute and now with Ethereum Layer 2.

Vitalik is Overwhelmed!

As of the posting, Vitalik has not responded to the accusations made by netizens other Ethereum community members, but in his January 24 self-written article, under the pressure of public opinion, Vitalik sends out a message calling out L2 proprietors: “Back for ETH,” a permutation of Vitalik’s frustration with the current state of Layer2’s operations is visible.

Vitalik said in the article that it is necessary to clarify the economic model of ETH to ensure that ETH continues to accumulate value in a Layer2-intensive world.

On an executive level, Vitalik encourages Layer 2 to support ETH by contributing a percentage of its fees, providing a permanent support mortgage and donating the proceeds to Ethereum mainnet.

By @LarryMetaTrust CSO, HashAi and @anndylian, Blockchain Expert & Author / Graphics by @Crypt0JayBear

Source: https://x.com/OfficialHashAI/status/1889758949681090841

Anndy Lian

www.anndy.com

j j j

December 13th, 2024

The Future of Crypto in Germany: MiCAR Implementation Challenges

Germany finds itself grappling with a significant regulatory challenge as the European Union’s ambitious Markets in Crypto-Assets Regulation (MiCAR) comes into effect. The collapse of its ruling coalition has left the country without the legislative framework necessary to fully implement MiCAR, creating a regulatory void that jeopardizes its role in the fast-evolving digital finance sector. This impasse carries profound implications for Germany’s financial markets and underscores the pressing need for decisive action to align with EU standards.

MiCAR represents a transformative step in the EU’s approach to crypto regulation, aiming to establish a unified legal framework across member states. Unlike directives, which require national adaptation, MiCAR applies directly to all EU countries. However, specific elements of the regulation—such as appointing a national body to issue licenses for Crypto Asset Service Providers (CASPs)—demand complementary national legislation. In Germany, this task was assigned to BaFin, the Federal Financial Supervisory Authority, through the Digitalisation of the Financial Markets Act (FinmadiG) and the Supervision of Crypto Markets Act (KMAG).

Yet political instability has stalled the passage of these crucial laws, leaving BaFin unable to issue MiCAR licenses. This legislative gap not only hampers new market entrants but also disrupts existing financial institutions, such as banks and securities firms, seeking to extend their licenses to comply with MiCAR requirements. The resulting uncertainty casts a long shadow over Germany’s crypto market operations, complicating efforts to position the country as a leader in digital finance.

A National Challenge with EU Implications

The inability to implement MiCAR carries serious consequences. For one, it places Germany in violation of EU law. A group of German academics recently highlighted this in a formal letter to the Bundestag Finance Committee, warning that the absence of a national implementing law leaves Germany non-compliant with MiCAR, which has been enforceable since June 30. This non-compliance risks infringement proceedings by the European Commission, threatening Germany’s reputation as a reliable player in financial regulation.

Furthermore, the lack of regulatory clarity disadvantages domestic companies. While foreign firms licensed in other EU countries can operate freely in Germany, local businesses find themselves trapped in limbo, unable to obtain the necessary licenses to compete on equal footing. This regulatory asymmetry risks driving innovation and investment to EU nations that have successfully implemented MiCAR, potentially resulting in economic losses, reduced job opportunities, and diminished influence in the global crypto ecosystem.

Broader Consequences for Digital Finance

Germany’s struggles resonate far beyond its borders. As the largest economy in the EU, its approach to crypto regulation serves as a bellwether for other nations. Failure to implement MiCAR undermines the EU’s broader efforts to establish a harmonized regulatory environment, risking fragmentation and regulatory arbitrage within the bloc. Such outcomes could erode the EU’s credibility and its capacity to present a unified stance on digital finance on the global stage.

The German impasse also underscores a universal challenge faced by governments worldwide: keeping pace with the rapidly evolving crypto landscape. Consistent and transparent regulations are essential for safeguarding financial stability, protecting consumers, and fostering innovation. Germany’s experience serves as a cautionary tale of how political instability and legislative inaction can derail progress in a sector defined by speed and innovation.

An Urgent Need for Action

To address these challenges, Germany’s Bundestag must prioritize the passage of FinmadiG and KMAG, establishing the legal foundation for BaFin to enforce MiCAR effectively. This is not merely a matter of compliance but a strategic imperative to reclaim Germany’s competitive edge. Without prompt action, Germany risks forfeiting its leadership position within the EU and the broader digital finance landscape.

Financial experts and advisors to the Bundestag’s Finance Committee have consistently called for swift legislative action, emphasizing the urgency of this task. The stakes are monumental: the digital finance sector represents not only a pivotal growth opportunity but also a chance to shape the global financial architecture for decades to come. Germany’s failure to act would cede this ground to more proactive nations.

Lessons for the Global Crypto Market

While the current situation may seem like a uniquely German issue, it reflects broader global dynamics. The world is watching as nations experiment with frameworks to regulate the complex and fast-moving crypto market. Germany’s current predicament serves as a stark reminder of the importance of political stability and governance in managing this challenge.

For Germany, the path forward is clear. Passing the necessary legislation is essential not only to restore compliance with EU law but also to provide domestic financial institutions with the certainty they need to thrive in an increasingly competitive landscape. More broadly, Germany must signal its commitment to becoming a global hub for digital finance, embracing the transformative potential of crypto-assets.

A Turning Point for Germany and Beyond

Germany stands at a crossroads. The collapse of its ruling coalition has disrupted its legislative agenda at a moment when clarity and leadership are needed most. This impasse jeopardizes Germany’s position in the global crypto market and threatens the EU’s efforts to establish a cohesive regulatory environment for digital finance. To recover, Germany must act decisively, implementing MiCAR and reasserting its role as a leader in financial regulation.

The broader implications of Germany’s experience are clear. Governments must develop proactive and adaptive approaches to regulating digital finance, balancing innovation with consumer protection and market integrity. Germany’s challenges highlight the vital role of effective governance in shaping the financial future. As the global community continues to explore the possibilities of crypto-assets, Germany’s story serves as both a cautionary tale and an urgent call to action for policymakers worldwide.

Source: https://intpolicydigest.org/the-future-of-crypto-in-germany-micar-implementation-challenges/