Cryptocurrency markets fell today after bitcoin and altcoins corrected after the minutes of the FOMC Federal Reserve meeting hinted at further rate hikes if high inflation continues.
Cryptocurrency markets fell today as market volatility increased and investors digested the minutes of the Federal Reserve meeting, which suggested that rate hikes could take longer than most investors expect.
The gloom came after the Feb. 14 Consumer Price Index (CPI) data showed higher-than-expected inflation and the US Securities and Exchange Commission (SEC) stepped up regulatory compliance.
Cryptocurrency market indicators, daily timeframe: Coin360
Repression in the US leads to an increase in the outcome of the cryptocurrency
The main catalyst for the decline during the day seems to have been investor concerns about enforcement action against the crypto industry. The recent SEC crackdown on Paxos and Binance, as well as enforcement action against centralized exchanges offering staking as a service, was followed by a $32 million digital asset outflow on February 20.
On February 9, the SEC took a series of enforcement actions against Kraken’s profit-making scheme. In a $30 million settlement announcement, the SEC said it accused Kraken of “failing to register its offering and sale program as a collateral asset service.” cryptographic assets”, which, in the opinion of the commission, qualifies as a sale of securities. In addition to the fine, Kraken also agreed to terminate the profit-making scheme.
Nexo also recently decided to end its centralized staking program. While some see the staking ban as yet another nail in the cryptocurrency’s coffin, Coinbase CEO Brian Armstrong has vowed to take tough action if the case goes to trial.
On February 13, the SEC sent a notice to the Paxos stablecoin issuer stating that BUSD is an unregistered security. Following the SEC announcement, New York regulators ordered Paxos to stop issuing BUSD, the third largest stablecoin in the cryptocurrency market, on the same day.
Binance has stated that it intends to continue supporting BUSD despite the mandate against Paxos. The securities case against BUSD is complicated by the potential profit from arbitrage, hedging and betting, US attorneys say.
While some decentralized staking protocols may benefit from recent enforcement measures, the crypto regulatory environment remains unclear and uncertainty often results in market volatility. Although the total value locked (TVL) of the DeFi market topped $50 billion on February 17 for the first time in six months, the blow to the crypto industry had uncertain consequences.
Over the past few years, the cryptocurrency industry and regulators have struggled due to various misunderstandings or distrust of the real use cases for digital assets. After the FTX fiasco, some believe that US lawmakers are unhappy with the crypto industry. Recent debate has focused on how centralized exchanges (CEXs) use customer funds.
On February 13, SEC Chairman Gary Gensler issued the following warning:
“If this space has any chance of survival and success, it is the time-tested rules and laws that protect investors. Don’t put your hands in customers’ pockets and don’t use their money for your own platform.”
The lack of clarity and transparency on this issue could affect growth and innovation in the industry, and many analysts believe that the adoption of cryptocurrencies cannot happen until a more generally accepted set of laws is passed. The Financial Stability Board (FSB) believes that many stablecoins will not be able to comply with the looming burdensome regulation.
The Commodity Futures Trading Commission (CFTC) has also called for greater regulatory clarity, but the pace of these changes is unclear. On Jan. 28, the Biden administration released a cryptocurrency roadmap recommending that pension funds be banned from investing in high-risk investments.
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Higher rates and weak economic expectations weigh on risky assets
Cryptocurrency prices are still highly correlated with the Dow and S&P 500. After January CPI data showed higher-than-expected inflation of 0.5%, the FOMC meeting minutes confirmed that the Fed will continue to raise rates until then. as long as they deem it necessary.
January consumer price chart. Source: US Bureau of Labor Statistics.
In addition to being dovish about inflation, most major banks still expect the US to face a deep recession sometime in 2023.
According to Bank of America analysis, in the current economy