Crypto markets fell today as hawkish language from the Federal Reserve suggested the next rate hike would exceed market consensus.
The cryptocurrency market fell today after U.S. stocks saw a sharp correction following statements from Federal Reserve Chairman Jerome Powell regarding interest rates and high inflation.
Bitcoin
The current price is $22,300, which is a worrying level for traders who believe that a break below the $22,000 level will trigger a trend reversal to $19,000. Similar concerns exist for Ether
Ethereum $1,553, currently trading at $1,555, with the key support at $1,450.
Crypto markets are no stranger to volatility, with wild price swings often occurring ahead of the release of key economic data reports and announcements on monetary policy and interest rate hikes by the Federal Reserve.
The future of crypto and stock performance lies in the hands of the Fed
On March 7, Federal Reserve Chairman Powell said that economic data for February may show that inflation rose more than expected.
“The latest economic data has been stronger than expected, which suggests that the final level of interest rates may be higher than previously expected.”
Powell added:
“We would be prepared to accelerate the pace of rate hikes if the headline data suggest faster tightening is warranted.”
Following these statements, the Dow and S&P 500 fell 1.18% and 1.08%, respectively, and BTC retreated to $21,927. The expected reaction to the hot inflation report is a higher-than-expected rate hike at the end of the FOMC on March 22, with Powell releasing economic guidance to explain the rate hike.
Prior to today’s statement, the consensus was for a 0.25% rate hike to a target range of 4.75% to 5.0%, but that estimate could change over the next two weeks, especially if Powell continues to sound hawkish.
In fact, market participants are pricing in a higher than 50% chance of a 50 basis point rate hike at the March 21-March 22 meeting, CME Group data showed.
Liquidity issues grow as US cracks down on stablecoin issuers and Silvergate Bank reels
Recent enforcement actions against Paxos and Binance, coupled with the recent SEC crackdown on centralized staking, have also hindered the development of sustainable bullish momentum across the market. While some decentralized staking protocols may benefit from recent enforcement actions, the crypto regulatory environment remains unclear, and uncertainty often leads to market volatility.
The cryptocurrency industry and regulators have long been at odds due to various misunderstandings or distrust of the actual use cases of digital assets. The latest debate has centered on how centralized exchanges (CEXs) use customer funds.
SEC Chairman Gary Gensler issued the following warning,
“If this space has any chance of survival and success, it’s time-tested to have rules and laws that protect the investing public. Don’t put your hands in your clients’ pockets and use their funds on your own platforms.”
The SEC took a series of enforcement actions against Kraken’s profit scheme on Feb. 9. In a $30 million settlement announcement, the SEC said it had charged Kraken with “failing to register its offer and sale of crypto-asset collateral-as-a-service program,” which the commission said qualified as securities sales. In addition to the fine, Kraken also agreed to cease operations of the profit scheme.
The enforcement action also led to Nexo ending its centralized staking program as well. While some see the staking ban as another nail in the coffin for cryptocurrencies, Coinbase CEO Brian Armstrong vowed to fight the action if it goes to court. Not all SEC commissioners agreed to take enforcement action against Kraken, but the agency announced new crackdowns following this decision.
On February 13, the U.S. Securities and Exchange Commission sent a notice to stablecoin issuer Paxos, claiming that BUSD is an unregistered security. Following the SEC’s announcement, the New York regulator ordered Paxos to stop issuing BUSD, the third largest stablecoin in the cryptocurrency market, on the same day.
Concerns about Silvergate Bank’s solvency are also affecting prices across the cryptocurrency market. Silvergate was one of the main gateways into the crypto market, and its potential demise could complicate the flow of liquidity across the industry.
After a stellar start to 2023, cryptocurrency prices are primed for a correction
Bitcoin and cryptocurrency markets have had a strong start to 2023, with 64% of BTC investors making a profit as the BTC price reached $25,300 on February 21. Even struggling Bitcoin miners saw significant growth, with revenue increasing 50% to $23 million, suggesting a recovery for the troubled industry.
Related: BTC May Need to Drop to $19,300 to Cool Bitcoin Profit Taking – New Data
Top crypto investors believe more sell-offs are coming, with Bitcoin analysts warning of a prolonged downtrend. CME futures have a “gap” below $20,000, with some traders expecting BTC prices to fall back to that level at some point in the future.
Meanwhile, investor risk appetite is likely to remain subdued, and potential cryptocurrency traders may consider waiting for signs of peaking inflation in the United States or for the Federal Reserve to signal a small rate hike. A more transparent regulatory roadmap for the crypto industry would also help improve sentiment across the industry.
