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June 30, 2021

DeFi Market Wrap

The DFi Labs Wrap


Cryptocurrency exchanges have long been the subject of controversy, especially in relation to the numerous incidents of hacking and problems related to anti-money laundering controls. However, regulatory focus is slowly turning to their core activity, trading.


While cryptocurrency trading is not directly regulated in the UK, offering services, such as
cryptocurrency derivatives trading, requires authorisation. Last Friday, the UK’s financial regulator ordered Binance, one of the world’s largest cryptocurrency exchanges, to cease all regulated activity and issued a warning to consumers about the platform, which has come under increasing global scrutiny. The UK ban comes a day after Japan’s financial regulator, the Financial Services Agency, warned that Binaryance is not registered to do business in the country. The exchange has until Wednesday evening to confirm that it is complying with the FCA’s demands. As part of the FCA’s action, the regulator ordered Binance to display on its website by next Wednesday that “Binance Markets Limited is not authorised to carry on regulated activity in the UK.” Binance Markets Limited is among the 90% of crypto firms that have withdrawn their applications to register with the FCA. Binance withdrew its application on 17 May “following intensive engagement with the FCA.”


Since January, the FCA has required all firms offering cryptocurrency services to register and show they comply with anti-money laundering rules. However, this month it said only five firms had registered and that the majority were not yet compliant. Given the fundamental role cryptocurrency exchanges play in the overall crypto ecosystem and the growing degree of interconnectedness between crypto and conventional finance, it is important to understand not only whether crypto exchanges are regulated, but how they are regulated.


Binance is only loosely regulated. Despite the fact that Binance is a prominent figure in the crypto space, the exchange platform is not regulated in any popular jurisdiction. Hence, the reason why the exchange can list more coins and offer certain services that Binance competitors cannot without requiring customers to go through a user verification process in some cases. While some other leading exchanges operate as licensed Money Service Businesses (MSBs) or equivalent – including Coinbase. This means they have to register with the Financial Crimes Enforcement Network (FinCEN) in the US and/or the Financial Conduct Authority (FCA) under the Payment Services Regulations 2017 in the UK. Nevertheless, it does not mean that their trading activities are regulated.

Money transfer laws at the state level.
A licensed money services business operat ing through separate entities in multiple jurisdictions (FinCEN in the US, FITRAC in Canada, FCA in UKA, Austrac in Aust ralia and FSA in Japan).
Subject to the Bank Secrecy Act - must verify customer identity, maintain t ransact ion records and report certain transactions.
Largely self-regulated in terms of MSB AML requirements.
Must appoint a compliance officer and maintain compliant procedures under the USA Patriot Act.

While exchange registration can provide some comfort to investors, the focus of regulators is generally on anti-money laundering (AML) measures and due diligence – not trading. In the UK, cryptocurrencies are only regulated for money laundering purposes, and there is no broader framework governing the activities of exchange platforms unless they cross the line into other areas of regulated financial activity.


The global crypto market saw a 4.64% increasein its total capitalisation over the last day. Bitcoin also noted a 4.41% price increase during the same time, crossing the $33,000 mark. On Friday, bitcoin saw a sharp decline from the $35k price area until finding support at $30k on Saturday.

While Friday was admittedly a difficult day in the crypto space, the weekend was relatively bullish, essentially walking back Friday losses after a quick intraday visit to 30,000 on Saturday. BTC is currently at $34,360.95, still safely within its 32K-42K range.

Among the best Alts, ETH is up 10% (Sunday). Ethereum rallied 8.51% on Sunday. After gaining 1.11% on Saturday, Ethereum ended the week down 11.51% at $1,984.71 an ounce. Ethereum broke through the first key resistance level at $1,882 before slipping to a late intraday low at $1,807.89. ETH posted a gain of 10.15% over the past day.


BTC is getting support from institutional investors and prominent billionaires, although the price has fallen in recent weeks. Ricardo Salinas, head of banking at Banco Azteca, is the third richest man in Mexico with a family fortune of almost $16 billion. He is also a long-time proponent of cryptocurrencies and revealed last year that he holds 10% of his liquid investment portfolio in BTC and said he is working to make his bank the first in Mexico to accept the largest cryptocurrency.


The network activity of BTC is closely related to its price movement. In recent weeks, the Bitcoin network saw a slump in its overall activity due to a more than 40% drop in BTC price. The total number of active Bitcoin addresses reached its lowest level in 12 months in June 2021. However, due to the recent rebound in the price of BTC, the total number of active BTC addresses has jumped.


Since its launch, the Ethereum network has attracted interest from investors and developers alike due to its secure and superior features and perceived growth potential. The network’s native currency, Ether, is the second-largest in terms of market capitalisation. At the time of writing, it was valued at $2,017.02, less than half its ATH of $4,356 in May. Even the Bitcoin blockchain falls far behind when compared to the daily settlement volume on Ethereum. The former settles about $9.93 billion daily, while Ethereum settles more than three times as much.

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