Bitcoin has officially broken through the $25,000 mark for the first time since April, despite the Fed’s decision to keep interest rates unchanged. “Shorts” have more basis to place orders in the market.
Bitcoin falls again as interest rates stop rising
On June 15, the Federal Reserve announced that it would stop raising interest rates, which was in line with the predictions of most experts and the market. While this should have been good news for cryptocurrencies, the key lies in the minutes and the speech of Mr. Jerome Powell, Chairman of the US Securities and Exchange Commission. Just 30 minutes after the Fed Chairman's speech, the price of Bitcoin fell 4% from $25,867 to $24,819.
While this volatility is still modest compared to past Fed rate hikes, it could be a reason for investors to believe that Bitcoin is unlikely to return to $30,000 in the coming months.
During the FOMC meeting, Fed Chairman Jerome Powell said that the 5-5.25% interest rate range is just a temporary pause. This could mean that future meetings could pose a threat to the long-term development of cryptocurrencies.
According to Mr. Powell’s comments, interest rates may rise and remain higher for a longer period of time, despite good performance of indicators such as PPI or CPI, showing that inflation is on the right track. This puts Bitcoin in a difficult position in the next Fed meeting. Judging from the dot chart, Fed members want to raise interest rates to 5.5% to 5.75%, which is equivalent to two more rate hikes. Realizing that the risk still exists, Bitcoin plummeted and caused more than $147 million in assets to be liquidated based on the above information.
According to CoinShare, $88 million flowed out of the market last week, bringing the total amount of asset withdrawals to $417 million for eight consecutive weeks. CoinShare analysts said the trend was due to investors noticing that interest rates showed no signs of cooling, making them increasingly cautious in their market investment decisions.
In addition, the outflows also came from Bitcoin miners, whose incomes also fell when the market cooled. Some miners decided to reduce their workload and began selling Bitcoin in June.
In addition to the decline in revenue, factors affecting selling pressure may also come from the mining difficulty and hash rate reaching all-time highs. According to data from Glassnode, on June 3, miners' deposit flows to exchanges soared to a three-year high.
Please note that the above content is for reference only and does not constitute investment advice. Please conduct sufficient research and evaluation on your own before making any investment decision.
Legal barriers grow in the US
Investors must have felt pressed by the tightly scheduled regulatory events over the past two weeks as agencies like the SEC and CFTC have been circling around cryptocurrency legislation. Allegations continue to be made, but when in court or facing legal claims, the SEC has often been unable to come up with convincing regulations for cryptocurrency-related matters.
Recently, Coinbase filed a petition with the SEC regarding the regulatory framework for cryptocurrencies. The agency will need more than 120 days to decide whether to accept Coinbase's petition. SEC Chairman Gary Gensler will maintain his position in deciding not to issue new regulations. While Mr. Gensler's comments do not represent the SEC, as the head of the agency, the Chairman will certainly decide not to let the petition go forward.
Until new regulations are in place, investors are sure to continue to see many other “heart attacks” like the one Bitcoin experienced in June when it suddenly dropped. This was also the “heart attack” that caused Bitcoin to drop more than 4% at the beginning of last week.
It seems that Gary Gensler and the SEC have become opposing entities in the eyes of cryptocurrency investors and politicians who defend this potential industry. Although back in 2018, Mr. Gensler’s views were completely opposite to what he has now.
It is very difficult to face the SEC, but companies such as Ripple, Binance, and Coinbase are still willing to fight against it to protect their own interests. This week, Binance received a positive signal when the court rejected the SEC's order to freeze Binance's US assets. Even if the SEC suspected that Binance transferred assets overseas, it could not provide a convincing argument.
The fight with the SEC to find a regulatory framework for cryptocurrencies could last a long time, even until the end of Gensler's term. Perhaps until the U.S. develops its own legal framework, the inflow of funds from the U.S. may be as abundant as before. According to CryptoQuant, the supply flowing into the market from the U.S. has decreased since April 2021 due to regulatory issues. Like it or not, the source of funds from the U.S. is still very important because the U.S. dollar is one of the factors that greatly influence the price of Bitcoin.
As mentioned earlier, the current macroeconomic and regulatory policies in the United States are obstacles to Bitcoin's breakthrough, and reality is proving this. The market is eager for new trends to keep funds flowing, and perhaps when they appear, Bitcoin will really have a chance to break through.
Unlike the United States, Hong Kong has an open attitude towards cryptocurrency companies. Not only did Hong Kong invite Coinbase to set up operations here, but the central bank of Hong Kong also required organizations to support cryptocurrency companies as digital asset service providers, allowing these companies to obtain banking services.
In Europe, MiCA regulations are gradually taking shape, and EU financial regulators are preparing for a consultation in July. The consultation on MiCA issues, such as licensing procedures, governance, conflicts of interest and complaints handling, will require approval from the European Commission, Parliament and Council.
The MiCA regulations are expected to take approximately 18 months to fully come into effect, suggesting that the regulator is taking steps to prepare for a smooth implementation.
Stablecoins in danger
Stablecoins not only provide stability and liquidity, but they have long been viewed by many investors as a safe haven when the market is volatile. Therefore, bad news surrounding stablecoins is bound to bring difficulties to the development of the market.
Since the beginning of 2023, stablecoins have been tangled with various issues, including banking crises and legal problems:
February: The SEC alleges that BUSD is a security, causing Paxos to stop minting the stablecoin. As a result, the supply of BUSD in the market continues to decrease.
March: The US banking crisis directly affected USDC’s peg, as parent company Circle was unable to withdraw assets from banks. Although the peg was later restored, USDC’s reputation was somewhat diminished.
June 14: TUSD stops minting stablecoins on PrimeTrust due to issues with a partner firm.
June 15: USDT lost its peg (to $0.997) as 3pool on Curve lost its ideal ratio of 33.33% per stablecoin. USDT’s share was pushed up to 70%, showing that investors have already exchanged a large number of these stablecoins for DAI and USDC.
According to Tether’s CTO Paolo Ardoino, bad actors are using 3pool on Curve to manipulate the price of USDT in the current complex market conditions. Ardoino asserted that Tether is willing to spend funds to avoid adverse effects on USDT.
The bad news surrounding stablecoins has caused their supply to be affected as well. According to data from DeFiLlama, the market capitalization of stablecoins has been on a downward trend since the beginning of the year, and there is no sign of stopping. Investors seem to be waiting for better on-chain signals from stablecoins to understand the purchasing power in the market, so as to more rationally reduce funds in the long term.
However, as well-known investor Miles Deutscher observed, stablecoin crashes often signal a slight increase in the market. Therefore, if investors have short-term goals, this may be an opportunity for us to “take action.”