Cryptocurrency market performance, daily timeframe: Coin360

U.S. crackdown leads to increased crypto outflows

The main catalyst for the day appears to be investor concerns about enforcement actions against the crypto industry. He saw $32 million in digital assets exfiltrated on February 20, following the recent SEC crackdown on Paxos and Binance and enforcement actions by centralized exchanges that offer staking-as-a-service.

s Acquisition program on February 9th. In announcing the $30 million settlement, the SEC accused Kraken of “failing to register its offer and sale of a cryptocurrency staking program as a service,” classifying the fee charge as a sale of eligible securities. In addition to the fine, Kraken has agreed to stop operating its revenue program.

Nexo also recently decided to end its centralized staking program. While some have argued that the staking ban is just another nail in the crypto coffin, Coinbase CEO Brian Armstrong has vowed to fight lawsuits if they come. 02

. On February 13, the SEC filed documents with stablecoin issuer Paxos claiming that BUSD was an unregistered security. On the same day, following the SEC announcement, New York regulators ordered his Paxos to stop issuing BUSD, the third largest stablecoin in the cryptocurrency market.

Binance says it intends to continue supporting BUSD despite the order against Paxos. US attorneys believe the securities argument against BUSD is complicated by potential gains from arbitrage, hedging and staking opportunities.

While some decentralized staking protocols may benefit from recent enforcement actions, the crypto regulatory environment remains unclear and uncertainty often leads to market volatility. I have. The DeFi market’s Total Locked Value (TVL) surpassed $50 billion for the first time in six months on Feb. 17, but the crackdown on staking has had uncertain consequences for the crypto industry.

Historical numbers Over the years, the cryptocurrency industry and regulators have worked together due to various misconceptions and mistrust of the real-world use cases for digital assets. Some feel that US lawmakers are furious with the crypto industry after the implosion of FTX. The latest battle focuses on how centralized exchanges (CEX) can use their customers’ funds.

On Feb. 13 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.”

The lack of clarity and transparency on this issue has stifled growth and innovation within the sector, with many analysts skeptical of the mainstreaming of cryptocurrencies until a set of generally accepted laws is enacted. I don’t think it’s possible. The Financial Stability Board (FSB) believes many stablecoins will fail the nasty regulation ahead.

The Commodity Futures Trading Commission (CFTC) is also seeking clearer regulation, but the pace of change is unclear. On Jan. 28, the Biden administration released a cryptocurrency roadmap that proposed blocking pension funds from investing in risky assets.

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

Crypto prices are still highly correlated with the Dow and S&P 500. After the January CPI print showed inflation higher than expected with a 0.5% increase, the FOMC minutes confirmed that the Fed will continue to raise interest rates as long as they view it necessary.

January CPI chart. Source: The U.S. Bureau of Labor Statistics

In addition to weak inflation sentiment, most major banks still expect the US to experience a sharp recession in 2023.

“The U.S. Consumer Price Index and Producer Price Index both exceeded expectations in January, reinforcing the view that the Fed will continue to tighten monetary policy to return inflation to its long-term goal of 2%. Headline consumer inflation rose 0.5% relative to December and 6.4% in the past year. Core consumer inflation, excluding volatile food and energy prices, also exceeded expectations, rising 0.4% over an upwardly revised December and 5.6% compared to a year ago.”

Related: Bitcoin could hit $10M in 9 years but more sidechains needed: Blockstream CEO

Global economic health. Source: U.S. Bank

Traders book profits after Bitcoin’s stellar January performance

Bitcoin and the crypto market has witnessed a strong start to 2023, seeing billions of USD Coin

USDC

tickers down

$1.00

flow into BTC to generate a 6-month high of $24,800 on Feb. 16. Even struggling Bitcoin miners saw massive growth, with revenues rising by 50% to $23 million, signaling a recovery for the beleaguered industry.

While Bitcoin had the second-best January on record, it’s possible that the enforcement actions from the SEC and headwinds from macro markets contributed to the current crypto price correction and brief decoupling from U.S equities.

Data shows that Bitcoin’s price 7-day volatility on Feb. 20 reached the highest level since the FTX collapse.

Bitcoin price volatility. Source: Arcane Research

The increase in volatility comes after crypto prices have outperformed major U.S. indices. Top crypto investors believe more sell-offs are on the horizon and Bitcoin analysts push warnings of the long-term downtrend continuing as macro headwinds will continue to impact crypto prices.

Bitcoin, Ether and major U.S. indices comparison. Source: Arcane Research

Meanwhile, investor risk appetite is likely still subdued, with aspiring crypto traders waiting for signs that U.S. inflation has peaked, or a smaller rate hike by the Fed on the horizon. A more transparent roadmap for crypto industry regulation could also help improve sentiment across the sector.

The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Cointelegraph.com. All investment and trading movements involve risk. You should do your own research when making a decision.

This article does not contain investment advice or recommendations. All investment and trading moves involve risk and readers should conduct their own research when making decisions.