The recent decline in the crypto market can be attributed to multiple factors, including the fallout from Silvergate Bank’s demise, a lawsuit against KuCoin exchange by a U.S. regulator, and hawkish comments from the United States Federal Reserve chair Jerome Powell. Bitcoin and Ether both experienced a decline in prices, leading analysts to suggest that the bears are in control of the crypto market.
Federal Reserve chair Powell’s comments about the expectation of higher-than-anticipated inflation led to concerns about interest rate hikes and a softening economy, further weighing on risk assets. Additionally, the expectation of a sharp recession in the U.S. in 2023 has led to a decline in investor sentiment about the current state of the economy.
Furthermore, the U.S. regulatory crackdown has spread to KuCoin, with New York Attorney General Letitia James announcing a lawsuit against the major crypto exchange for failing to register as a broker-dealer and allowing the trading of Ether as a security on its platform. Recent enforcement actions against Paxos and Binance and the SEC crackdown on centralized staking have also prevented the development of sustainable bullish momentum across the market.
The crypto regulatory environment remains unclear, leading to market volatility. The recent implosion of FTX and warning from the SEC Chair Gary Gensler about using customer funds for platform operations have fueled concerns among investors. With Silvergate Bank’s liquidation, regulators are expected to keep a closer eye on the sector, leading banks to implement robust anti-money laundering measures.
While the crypto market had a strong start in 2023, investors’ appetite for risk is likely to remain muted. Potential traders may consider waiting for signs that U.S. inflation has peaked or for the Fed to signal smaller-sized interest rate hikes. A more transparent roadmap for crypto industry regulation would also help to improve sentiment across the sector.
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