Crypto regulatory 'overhang' a 'concern' contributing to volatility: Expert

Ben McMillan, founding partner and CIO at IDX Insights, discussed the global efforts to regulate cryptocurrencies on Friday, stressing that "regulatory overhang has always been a concern" and is contributing to market volatility. 

McMillan provided the insight on "Mornings with Maria" on Friday as bitcoin entered the end of the week trading around $45,000, after falling for a third consecutive day.

Ticker	Security	Last	Change	Change %
COIN	COINBASE GLOBAL INC.	310.98	+17.69	+6.03%
BITQ	BITWISE CRYPTO INDUSTRY INNOVATORS ETF - USD DIS	20.70	+1.60	+8.38%

Bitcoin, along with cither cryptocurrencies, declined as newly released inflation numbers increased, and after the European Union voted on crypto legislation.

McMillan attributed the recent crypto volatility in large part to the EU vote, calling it the "catalyst for this selloff."

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On Thursday, European Union lawmakers backed new safeguards for tracing transfers of bitcoin and other cryptocurrencies. 

Two committees in the European Parliament jointly voted by 93 to 14 on cross-party compromises, which crypto exchange Coinbase Global warned would usher in a surveillance regime that stifles innovation.

Under the draft law first issued by the EU's executive European Commission, crypto firms such as exchanges would have to obtain, hold, and submit information on those involved in transfers, Reuters reported.

Currently, there are no EU requirements for tracing crypto transfers.

In the United States, the Securities and Exchange Commission (SEC) said on Thursday that U.S. listed companies that hold cryptocurrencies on behalf of users and customers should account for those assets as a liability on their balance sheet and disclose the related risks to investors, Reuters reported.  

The guidance from the securities regulator would reportedly apply to a range of listed entities, including crypto exchanges and traditional firms such as retail brokers and banks that are have been providing more cryptocurrency services and have been holding digital assets on behalf of an array of clients.

McMillan argued that the "regulatory overhang" looks "a lot worse in Europe than in the U.S."

The executive order on government oversight of cryptocurrency that President Biden signed last month "was very bullish in the sense that it represented a very distinct change in tone," he added. 

Biden’s executive order urges the Federal Reserve to explore whether the central bank should jump in and create its own digital currency.

Treasury Secretary Janet Yellen said the effort would "promote a fairer, more inclusive, and more efficient financial system" while countering illegal activity and preventing risks to national security and financial stability. 

McMillan said regulators, including Yellen and Sen. Elizabeth Warren, D-Mass., who "were very anti-crypto, are now talking about regulation that fosters innovation, which I think is a good pivot." 

He added that "it remains to be seen how that’s put into practice" and that the "change in tone" doesn’t necessarily mean that the U.S. is "out of the woods in terms of overregulation."

McMillan pointed out that Europe is "kind of where we were six, eight months ago where it’s still kind of very heavy-handed." 

He then told host Maria Bartiromo that the type of regulation that Europe "is talking about is just simply not well-thought-out."

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"It’s going to represent a de facto ban, so that would be more concerning," he continued.

Bitcoin finished the month with a gain of more than 9% but is down more than 1% year-to-date.

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FOX Business’ Ken Martin and The Associated Press contributed to this report.