The crypto market fell today, after a sharp retreat was seen in the US stock market after the chairman of the Federal Reserve of the United States Jerome Powell issued a statement about high interest rates and inflation.
The price of Bitcoin (BTC) is currently trading at $22,300, an important level for traders who believe that a drop below the $22,000 level will trigger a downward trend reversal to $19,000. Similar concerns exist for Ether (ETH), which is currently trading at $1,555 and has a key support level at $1,450.
The crypto market is no stranger to volatility, and most sharp price movements are seen before the release of key economic data reports and Federal Reserve announcements on monetary policy and interest rate hikes.
The future of crypto and stock performance is in the hands of the Fed
On March 7, Fed chairman Powell suggested that economic data from February could show a higher-than-expected uptick in inflation.
“The latest economic data has been stronger than expected, suggesting that top interest rates may be higher than previously anticipated.”
Powell added:
“If the totality of the data shows that further tightening is warranted, we will be prepared to increase the rate of rate increases.”
Following the statement, the DOW and S&P 500 fell 1.18% and 1.08% respectively and BTC retreated to $21,927. The expected response to the hot inflation report was a higher-than-expected rate hike on March 22 when the FOMC concluded and Powell issued guidance on the economy to explain the size of the rate hike.
Prior to today’s statement, the market consensus was for a rate hike of 0.25%, to a target range of 4.75% to 5.0%, but this estimate could change over the next two weeks, especially if Powell continues to drop hawkish language.
In fact, CME Group data shows market participants expect a higher than 50% chance of a 50 basis point increase in the March 21 to March 22 meeting.
Liquidity woes escalate as US fights stablecoin issuers and Silvergate Bank shakes up
Recent enforcement actions against Paxos and Binance, plus the recent SEC crackdown on centralized staking have also prevented the development of sustainable bullish momentum in the market. While some decentralized staking protocols may benefit from new enforcement actions, the crypto regulatory environment is still unclear and uncertainty often leads to market volatility.
The cryptocurrency industry and regulators have a long history of not getting along due to various misconceptions or mistrust of the actual use cases of digital assets. The latest battle is centered on how centralized exchanges (CEX) can use customer funds.
Gary Gensler, Chairman of the SEC issued the following warning,
“If this field has a chance to survive and succeed, time-tested rules and laws protect the public who invest. Don’t have your hand in the customer’s pocket, use the funds for your own platform.
The SEC began a new enforcement action following Kraken’s acquisition program on February 9. In the announcement of the $30 million settlement, the SEC stated that Kraken did not register the offer and sale of crypto staking-as assets. program -a-service,” which the commission claimed was the sale of securities. In addition to monetary fines, Kraken agreed to stop operating the program.
The enforcement action also led to Nexo also ending its centralized staking program. While some argue that the staking ban is another nail in the crypto coffin, Coinbase CEO Brian Armstrong has vowed to fight the action if it is brought to court. Not all SEC commissioners agreed on the enforcement action against Kraken but the agency announced new crackdowns after this decision.
On February 13, the SEC issued a notice to Paxos, a stablecoin issuer, claiming that BUSD is an unregistered security. After the SEC announcement, on the same day, the New York regulator ordered Paxos to stop issuing BUSD, which is the third largest stablecoin in the crypto market.
Concerns about Silvergate Bank’s solvency are also affecting prices in the crypto market. Silvergate is one of the major on-and-off ramps into the crypto market and its potential shutdown could cause liquidity flows across the entire industry.
Crypto prices are predicted to retreat after a stellar start until 2023
Bitcoin and the crypto market have witnessed a strong start to 2023, seeing 64% of BTC investors make a profit as the price of BTC reached $25,300 on February 21. Even struggling Bitcoin miners saw massive growth, with profits rising 50% to $23 million, signaling a recovery for the beleaguered industry.
related: BTC may have to dip to $19.3K to lose Bitcoin profit-taking – new data
Top crypto investors believe more selling is on the horizon and Bitcoin analysts are pushing back warnings of a continued long-term downtrend. There is a CME futures “gap” below $20,000, and some traders expect the price of BTC to return to this level at some point in the future.
In the meantime, investors’ appetite for risk is likely to remain muted, and potential crypto traders may consider waiting for signs that US inflation has peaked, or for The Fed to signal that a smaller interest rate hike is on the cards. A more transparent roadmap for crypto industry regulation will also help improve sentiment in the sector.
The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. Every investment and trading move involves risk, so you should do your own research when making a decision.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.