Bitcoin, the world’s largest cryptocurrency, has endured a sharp decline so far in September, dropping from over $61,000 to now trade at $56,600 as investors grapple with growing economic uncertainty.

The U.S. Securities and Exchange Commission (SEC) has charged cryptocurrency investment firm Galois Capital Management with failing to properly custody clients’ assets, including holding some of them in accounts with the now-collapsed exchange FTX.

U.S. Securities and Exchange Commissioner Mark T. Uyeda has called for the creation of a specialized S-1 registration form for digital asset securities during a fireside chat at Korea Blockchain Week 2024 in Seoul.

Top stories in the Crypto Roundup today:

• Options Market Shows Rising Demand for Bitcoin Hedges
• SEC Charges Galois Capital Over Use of FTX Accounts
• SEC Commissioner Calls for Tailored S-1 Form for Digital Asset Securities
• Chart of the Week: Bitcoin’s Performance in September, 2010 to 2023

Options Market Shows Rising Demand for Bitcoin Hedges

Bitcoin, the world’s largest cryptocurrency, has endured a sharp decline so far in September, dropping from over $61,000 to now trade at $56,600 as investors grapple with growing economic uncertainty.

Concerns over a potential economic slowdown in both the United States and China have rattled investor sentiment, leading to a wider sell-off that saw equities lose $1 trillion in market capitalization in a single session. The impending release of the U.S. jobs report on Friday has traders on edge, as they seek clues about the trajectory of the economy.

The options market is reflecting these anxieties as demand for hedges against Bitcoin keeps growing. Sean McNulty, director of trading at liquidity provider Arbelos Markets, noted a surge in demand for these hedges, particularly in the aftermath of the upcoming jobs data and the November presidential election.

One notable trend is the growing interest in options contracts expiring on November 29 at a strike price of $35,000, which suggests that some investors are hedging against the possibility of pro-crypto presidential candidate Donald Trump losing the race for the White House.

Other caution indicators include a slide in the aggregate open interest for CME Group’s Bitcoin futures contracts to the lowest level since May, while spot Bitcoin exchange-traded funds (ETFs) have experienced their longest streak of net outflows in months.

Historically, September has been a challenging month for Bitcoin, with an average decline of more than 8% over the past five years.

SEC Charges Galois Capital Over Use of FTX Accounts

The U.S. Securities and Exchange Commission (SEC) has charged cryptocurrency investment firm Galois Capital Management with failing to properly custody clients’ assets, including holding some of them in accounts with the now-collapsed exchange FTX.

The regulator alleges that Galois Capital, a former investment adviser for a private fund that mostly invested in crypto assets, broke custody rules that mandate investment advisers who custody client funds hold these with a qualified custodian and misled investors about how much notice was needed to redeem funds.

In a statement, Corey Schuster, co-chief of the SEC enforcement division’s asset management unit, noted that failing to comply with the custody rule “exposed investors to risks that fund assets, including crypto assets, could be lost, misused, or misappropriated.”

Per the regulator, about half of the firm’s funds were lost at the time of the FTX collapse. Galois Capital did not admit or deny the SEC's findings but agreed to settle the charges by paying a $225,000 penalty.

The collapse of FTX had a ripple effect on the cryptocurrency market, impacting numerous other firms. Earlier in 2022, Galois Capital had accurately predicted and profited from the collapse of the TerraUSD and Luna crypto ecosystem.

SEC Commissioner Calls for Tailored S-1 Form for Digital Asset Securities

U.S. Securities and Exchange Commissioner Mark T. Uyeda has called for the creation of a specialized S-1 registration form for digital asset securities during a fireside chat at Korea Blockchain Week 2024 in Seoul.

An S-1 form is a required registration statement that U.S. issuers must file with the SEC before offering new securities. It includes a range of disclosures, such as income statements and cash flow reports. Uyeda said that the SEC should adapt its regulatory framework to accommodate the unique nature of digital assets.

The commissioner pointed out that while the SEC has historically worked with product sponsors to develop tailored registration requirements for other financial products the same has not been done for digital asset securities.

Uyeda warned against creating a regulatory "catch-22" where digital asset securities issuers are required to provide disclosures that are irrelevant or that they cannot meet.

He stressed that the SEC should work toward regulatory clarity for these issuers, who face significant uncertainty about whether their products are classified as securities under federal law.

Despite the agency's oversight of digital asset-based securities such as tokenized bonds or cryptocurrency exchange-traded funds, whether cryptocurrencies themselves qualify as securities remains unresolved.

When asked about his dissent regarding the SEC’s recent decision to deny Coinbase's rulemaking petition, Uyeda reiterated that the agency needs to clarify what constitutes a security in the digital asset space.

The commissioner noted that he hopes SEC Chair Gary Gensler or any of his successors prioritize crypto legislation, but Gensler hasn’t added digital assets to the over 50 items on his regulatory agenda during his term.

Chart of the Week: Bitcoin’s Performance in September, 2010 to 2023

While history doesn’t repeat itself, September is a historically challenging month for Bitcoin. Since its inception in 2010, the digital asset has seen negative returns in September often, with only six months out of the total recording positive performance.

CCData’s Chart of the Week shows that September's average returns for Bitcoin stand at -4.51%, making it the worst-performing month for the cryptocurrency.

In contrast, April, November and October have historically demonstrated the strongest performance, with average returns of 35.6%, 39.2%, and 28.7% respectively.

State of the Crypto by Top Tier Exchange Volume

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