The crypto market is currently down as market volatility grows ahead of the release of the Consumer Price Index (CPI) report, along with increasing regulatory enforcement by the U.S. SEC. These happenings result in more losses for Bitcoin (BTC) and the broader cryptocurrency market, which is now flirting with 3-week lows.
U.S. Cracks Down Stablecoin & Staking Providers
Investors’ fears over enforcement actions against Paxos and Binance and the current SEC crackdown on centralised staking are the key bearish driver.
On February 9, the SEC initiated the latest enforcement proceedings by targeting Kraken’s Earn service. The SEC stated that Kraken had to pay $30 million for failing to register the offer and sale of its crypto asset staking-as-a-service program, which constituted a sale of securities. Besides the monetary penalty, Kraken agreed to halt the Earn program.
Nexo discontinued its centralised staking program as a result of the enforcement action. While others argue that the staking prohibition is another nail in crypto’s coffin, Coinbase CEO Brian Armstrong has pledged to defend the measure in court. Not all SEC commissioners agreed on the enforcement action against Kraken, but the agency announced new crackdowns following this ruling.
The SEC notified Paxos, an issuer of stablecoins, on February 13 that BUSD is an unregistered security. On the same day as the SEC statement, New York officials ordered Paxos to cease issuing BUSD, the third-largest stablecoin on the crypto market.
Despite the injunction against Paxos, Binance said they would continue supporting BUSD. Due to the possibility for arbitrage, hedging, and staking profits, American attorneys feel that the securities case against BUSD is complex.
The mainstreaming of cryptocurrencies cannot occur until a more widely agreed-upon set of rules is created, as the absence of clarity on this topic inhibits growth and innovation within the sector.
Crypto Prices Cool Amid Hot CPI & Macro Climate
The values of cryptocurrencies remain significantly connected with the Dow and S&P 500. Cryptocurrency markets rose in January after better-than-expected CPI data, but continuing concerns about the health of the U.S. and global economies mean that the CPI print directly influences markets. Further interest rate increases may be on the horizon if core inflation increases.
According to The Bitcoin Layer’s Nik Bhatia and Joe Consorti, all eyes are on the CPI core statistic.
“The market will be most closely watching the monthly core number, previously 0.3% and expected to rise to 0.4%. Any deviation from these expectations is sure to move markets, and we know that with rates, equities, and Bitcoin all hanging around very important technical areas”
Most major banks still anticipate that the United States will undergo a severe recession at some point in 2023, adding to the gloomy outlook around CPI prints. Robert Haworth, senior vice president of U.S. Bank, reports that investor mood in the present economy is poor.
“Consumer confidence remains low but is recovering to start 2023 from the record low in June 2022. The Michigan Consumer Sentiment Index, at 64.9, is well below average pre-pandemic levels, with consumers remaining concerned about inflation. Incomes continue to rise; personal incomes gained 5.8% on a 5% gain in wages in the fourth quarter and disposable personal income (less taxes) rose 6.5%. However, a rising savings rate during the quarter indicates consumers appear cautious.”
Traders Book Benefits After BTC’s Stellar January Trend
Bitcoin and the crypto market had had a great start to 2023, with 64% of BTC investors obtaining a profit as of January 29, when the BTC price surpassed $24,000. Even struggling Bitcoin miners experienced huge increases, with sales increasing by 50% to $23 million, indicating a turnaround for the sector.
Bitcoin experienced the second-best January on record, but the volatility induced by the SEC and macro markets might lead to a price correction in cryptocurrencies. Bitcoin and Ether’s January gains of 43% and 32% may prompt some investors to lock in profits before the U.S. tax season and the CPI report.
Top crypto investors anticipate further sell-offs, and Bitcoin researchers warn that the long-term slump will continue. A CME futures “gap” exists below $20,000, and some traders expect that the BTC price may return to this level.
Meanwhile, investors’ risk appetite is likely to remain subdued, and prospective crypto traders may wait for indications that U.S. inflation has peaked or for the Fed to suggest that smaller-scale interest rate rises are expected. A more open regulatory roadmap for cryptocurrency would also enhance sector sentiment.
