Cryptocurrency

Why is the crypto market down today?

Right as analysts thought that Bitcoin (BTC) was on the cusp of confirming a new bull market, the crypto market took a turn to the downside after the fallout from the United States Commodity Futures Trading Commission (CFTC) presented a lawsuit against Binance and its CEO Changpeng “CZ” Zhao. The lawsuit against the crypto sector’s largest exchange by users and volume spooked investors and brought prices down across the market. 

Bitcoin price hit a 7-day low on March 28 at $26,704 after failing to maintain the key $27,000 level. Traders are worried that a further correction could lead to a revisit of the bear market lows.

Similar worries exist for Ether (ETH) which breached the $1,700 level to reach a 7-day low at $1,698 on March 27.

U.S. crackdown leads to increased crypto outflows

On March 27, the CFTC filed a lawsuit against Binance, CZ and Samuel Lim, the Chief Compliance Officer. The lawsuit further alleges Binance offered derivatives to U.S customers without a license.

The lawsuit follows enforcement action against Paxos and Binance, confirming crypto investors’ suspicion that U.S.-based regulators have decided to finally lay down the hammer on unregulated crypto service providers.

Related: US enforcement agencies are turning up the heat on crypto-related crime

The cryptocurrency industry and regulators have a long history not getting along either due to various misconceptions or mistrust over the actual use case of digital assets. After the FTX implosion, some feel U.S. lawmakers are angry with the crypto industry. The most recent battle is centered on how centralized exchanges can use customer funds.

Gary Gensler, the SEC Chair, issued the following warning,

“If this field has any chance of survival and success, it’s time-tested rules and laws to protect the investing public. Don’t have your hand in the customer’s pocket, using their funds for your own platform.”

Regulators are expected to keep an even closer eye on the sector. Another CEX, KuCoin was sued by the New York Attorney General Letitia James on March 9.

While crypto price may be down, Mike Brusov, co-founder at the asset management firm Cindicator urges the industry to wait for more information,

“Recent news regarding the lawsuit between the CFTC and Binance CEO, Changpeng Zhao, may not sound good on the surface. But, keep in mind, the allegations still need to be proven as further evidence remains to be investigated. Binance is registered in other areas of the world other than the US, making us confident that their doors will remain open regardless of the results of the current lawsuit. The crypto market may experience a drawdown in light of this news, but should then recover as the defense proves out their case.”

Despite CZ’s rejection of the allegations, Binance saw a net outflow of $121 million in Bitcoin on March 27.

Interest rate hikes and the expectation of a softening economy weigh on risk assets

On March 28 at the conclusion of the Federal Open Markets Committee (FOMC), Federal Reserve chair Jerome Powell raised interest rates despite the capital acquisition and debt management challenges it is causing banks. While the Fed set up a program to protect depositors that appears to reverse its policy of monetary tightening, it has not translated to bullish crypto price action. 

Powell and the Fed remain committed to bringing inflation down to 2%. In a press conference directly following the FOMC announcement Powell reiterated,

“We remain committed to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”

Related: Binance-CFTC FUD puts BNB price at risk of drop toward $200

The market seems to believe that at the May 3 FOMC, that the Fed will keep interest rates the same rather than another increase.

To date, crypto prices are still highly correlated with the Dow and S&P 500 and most major banks still expect the U.S. to experience a sharp recession at some point in 2023. 

According to U.S. Bank analysis, investor sentiment about the current state of the economy remains low.

According to U.S. Bank, 

“U.S. equities appear range bound, with the S&P 500 moving between 3,800 and 4,200, impacted by the effects of still-elevated inflation and the Fed’s recent interest rate hike, mixed messaging surrounding uninsured deposits and the approaching kickoff of first quarter earnings reports.”

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, you should conduct 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 conduct their own research when making a decision.

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