The crypto market is down today after the fallout from Silvergate Bank’s demise, a U.S. regulator-led lawsuit against KuCoin exchange and hawkish comments from United States Federal Reserve chair Jerome Powell spooked investors.
Bitcoin (BTC) price hit a monthly low on March 9 at $20,207 and after the key $21,600 level was breached, traders are worried that a revisit of the bear market lows could occur.
Similar worries exist for Ether (ETH) which also reached a monthly low at $1,425, leading analysts to suggest that the bears are in control of Ether price.
Interest rate hikes and the expectation of a softening economy weigh on risk assets
On March 7, Fed chair Powell suggested that economic data from Feb. could show a higher-than-expected uptick in inflation.
“The latest economic data have come in stronger than expected, which suggests that the ultimate level of interest rates is likely to be higher than previously anticipated.”
Powell added that:
“If the totality of the data were to indicate that faster tightening is warranted, we would be prepared to increase the pace of rate hikes.”
Crypto prices are still highly correlated with the Dow and S&P 500. After Powell’s speech, major U.S. indices remained lower ahead of the important March 10 jobs report.
Adding to the tender sentiment surrounding inflation, most major banks still expect the U.S. to experience a sharp recession at some point in 2023.
According to U.S. Bank analysis, further interest rate hikes are likely and investor sentiment about the current state of the economy remains low.
U.S. crackdown leads to increased crypto outflows
The crypto market crackdown has spread to KuCoin. On March 9, New York Attorney General Letitia James announced a lawsuit against major crypto exchange KuCoin.The lawsuit further alleges that Ether is a security trading on the exchange which means KuCoin failed to register as a broker-dealer.
Recent enforcement action against Paxos and Binance, plus the recent SEC crackdown on centralized staking have also prevented the development of sustainable bullish momentum across the market. While some decentralized staking protocols may benefit from the recent enforcement action, the crypto regulatory environment is still unclear and uncertainty often leads to market volatility.
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.”
Now with Silvergate Bank’s liquidation, regulators are expected to keep an even closer eye on the sector. Silvergate was one of the primary on-and-off ramps into the crypto market which may complicate liquidity flow across the entire industry.
While there is debate over which U.S. agency is at fault for Silvergate’s downfall, banks are already preparing for further crypto regulation by implementing robust anti-money laundering measures.
Related: Why is Ethereum (ETH) price down today?
Crypto prices correct after a stellar start to 2023
Bitcoin and the crypto market had witnessed a strong start to 2023, seeing 64% of BTC investors reach profitability as BTC price reached $25,300 on Feb. 21. Even struggling Bitcoin miners saw massive growth, with revenues rising by 50% to $23 million, signaling a recovery for the beleaguered industry.
In the meantime, investors’ appetite for risk is likely to remain muted, and potential crypto traders might consider waiting for signs that U.S. inflation has peaked, or for the Fed to signal that smaller-sized interest rate hikes are on the cards. A more transparent roadmap for crypto industry regulation would also help to improve sentiment across 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, 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.