Since the start of the pandemic in late 2020, the crypto market has demonstrated both an unprecedented surge and a significant sell off as investors scrambled to pinpoint what’s next for the virtual currency. While it followed the same ebb and flow as the broader stock market – climbing when prices rose, and dipping when the Federal Reserve began its aggressive monetary policy – this past year has further seen stronger bearishness for digital assets. Much of this has been due to the hard line the SEC has taken on the industry, the collapse of key crypto-friendly bank Silvergate, and the ongoing regulatory FUD (fear, uncertainty and doubt) that has kept many investors frozen on the sidelines until they see which way the winds of the market will turn.
The SEC has been taking much harder line on the crypto industry since the start of 2020, charging a brokerage and the exchange Gemini for offering unregistered securities, and fining the exchange Kraken a hefty $30 million for violations of securities laws. Binance, world’s biggest crypto exchange, is currently in the eye of the storm and is expecting fines to settle a series of regulatory probes. Then there’s Silvergate, the crypto-enabling bank which abruptly announced it will wind down operations amid rumors of bankruptcy, sending its stock plunging. The shift in investor sentiment that followed is evidenced by Bitcoin funding rates hitting their lowest level of the year while liquidity has stalled due to the overall deterioration of market conditions.
The decreasing sentiment may also be a reflection of the high profile collapse of major exchanges such as FTX late last year, where its ex-CEO and co-founder Sam Bankman-Fried is now facing criminal charges for mismanagement and fraud. Coinbase Head of Research James Butterfill has pinpointed the problem on the mix oftightened regulatory action, and the lingering question of which entities the regulators will go after next.
While investors have been pulling out from crypto funds for fourth week in a row, leaving them in a state of limbo, traders understand that the “FUD” that surrounds regulatory uncertainty and banking within the crypto sector can make for an uncomfortable rollercoaster ride even as there is more room for upside in Bitcoin with a lack of overhead supply and a recent golden cross to help fuel price appreciation in the short-term. The weekly jobs report due out on Friday from the U.S. government is also certain to stoke up enough volatility for the market – should the Fed decide to raise interest rates even further, cryptocurrency prices are likely to take a big tear.
Crypto bearishness is evident, with investors concerned that the current regulatory crackdown and the collapse of major crypto-friendly banks like Silvergate will keep prices subdued. Not helped by the fact that 2020 ended with a suspect mega digital asset exchange FTX going bust, leaving cautionary tales of mismanagement and fraud. Amidst all this dense FUD, investors need to consider the macroeconomic headwinds on the horizon, especially with the upcoming US jobs report and the potential for further rate hikes by the Federal Reserve that could easily swing sentiment in the other direction. All eyes will be on the crypto market for the rest of 2023, particularly in the second half of the year for signs of stabilization and hopefully, a chance to hit new highs.
