- May 17, 2023
- Posted by: [email protected]
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As a result of growing regulatory uncertainty, the crypto market saw a downturn just as analysts predicted a potential price breakout for Bitcoin. Bitcoin’s price reached a 7-day low of $26,970, raising concerns of a further dip, with a CME gap lingering at $24,000. Ethereum faced similar worries, initially trading above $2,100 following the Shapella upgrade, only to hit an intraday low of $1,804 on May 16. This decline occurred alongside outflows exceeding $200 million as digital asset markets continued to shrink.
The decline in cryptocurrency prices coincided with the Securities and Exchange Commission’s (SEC) lawyers replying to Coinbase’s complaint seeking clarification on token securities, dismissing the suit as frivolous. During the 27th annual Financial Markets Conference, SEC Chairman Gary Gensler emphasized non-compliance and conflicts within crypto business models, reinforcing the opinion that most crypto tokens are securities. Democrats in the US legislature also sought to solidify the SEC’s authority over cryptocurrency, potentially classifying most tokens as securities. Gensler’s stance even encompassed network nodes, stating they should comply with securities laws if they handle securities.
The crypto industry and regulators have a strained relationship, fuelled by misconceptions and mistrust surrounding the true utility of digital assets. Recent events, such as the FTX implosion and the banking crisis affecting crypto-integrated banks, have seemingly amplified US lawmakers’ dissatisfaction with the industry. While the Ethereum network upgraded to allow staked Ethereum redemptions, the largest liquidity staking derivative, Lido, did not. However, on May 15, Lido initiated redemptions for stETH, resulting in $500,000 worth of ETH being redeemed within three hours.
Additionally, bankrupt crypto lender Celsius underwent a significant token transfer, moving 428,015 stETH, valued at $781 million, during the transfer. While some analysts speculate that Bitcoin could witness inflows if the US defaults on its debt, the risk of the US Treasury running out of funds and straining liquidity remains significant. Crypto prices still exhibit a high correlation with the Dow, S&P 500, and the expectations of major banks, which predict a sharp recession in the US in 2023.
According to a US Bank review of over 1,000 data points, investor sentiment on the current status of the economy remains low. The possibility of the US Treasury running out of funds by June 1 has triggered talks between President Joe Biden and congressional leaders to raise the debt ceiling, with a narrow but achievable window for reaching an agreement. Given the prevailing macro headwinds, crypto volatility is expected to persist.
