Why is the crypto market down today?

The crypto market is down today as Bitcoin and stocks are retracing their recent gains and investors are awaiting this week’s FOMC and the revelation of the next interest rate hike.

The crypto market is down today as market volatility increases ahead of the February 1 Federal Open Market Committee (FOMC) meeting and a host of news events are weighing on bitcoin, ether and altcoin prices.

After hitting new highs for 2023, Bitcoin and Ether have retraced some of their recent gains. The main downside catalyst appears to be investor apprehension over the FOMC’s upcoming interest rate decision. rates and similar setbacks are also seen in the falling stock market.

After the January 18 announcement that the United States The Justice Department took enforcement action against Bitzlato and intensified pressure on some crypto industry players, Binance began blocking some users’ accounts.

After initially benefiting from a consumer price index (CPI) print that showed inflation slowing beyond expectations in December 2022, crypto and Stock prices began to decline as retail data missed expectations and earnings fell.

US stocks fall ahead of the FOMC

Crypto prices are still highly correlated with the Dow Jones and the S&P 500. As mentioned earlier, macro and crypto markets rallied after a better than expected CPI report, but continued concerns over the health of the crypto market. The US and global economy resurfaced after earnings reports showed a slowdown in corporate earnings and consumer demand.

Most major banks still expect the US to experience a deep recession at some point in 2023.

According to data from the US bank, there is more pain ahead in the economy:

Inflation, interest rates and earnings remain key to equity returns. Right now, inflation remains elevated, interest rates are rising, and consensus earnings forecasts for 2023 are trending lower.

US Crackdown with Unclear Regulations Reverberates in Crypto Market

The cryptocurrency industry and regulators have a long history of not getting along due to various misconceptions or distrust of the real use case for digital assets.

On January 18, the US Department of Justice shut down the Russian exchange, Bitzlato and the initial DOJ announcement suggested strong action would be taken against the crypto sector, but the message was not specific.

On January 30, the leading centralized exchange (CEX) by volume, Binance, decided to block certain accounts due to the Bitzlato investigation. While Binance says “funds are safe”, FinCEN ranked Binance among Bitzlato’s top bitcoin counterparties.

Without a framework for regulating the crypto sector, different countries and states have a plethora of conflicting policies on how cryptocurrencies are classified as assets and precisely what constitutes a legal payment system.

The lack of clarity on this is weighing on growth and innovation within the industry, and many analysts believe that cryptocurrency integration cannot happen until a more universally agreed-upon set of laws is in place. not enacted.

While the Commodity Futures Trading Commission (CFTC) has called for clearer regulation, the pace of these changes is unknown. The Biden administration has released a roadmap for cryptocurrencies that suggests preventing pension funds from investing in high-risk investments.

Risky assets are heavily impacted by investor sentiment, and this trend extends to Bitcoin and altcoins. To this day, the threat of hostile cryptocurrency regulation or, in the worst case scenario, an outright ban continues to impact crypto prices on an almost monthly basis.

Regulators recently turned their eyes to Gemini and Digital Currency Group over the Earn program, which may further hamper the crypto market. The lawsuit of former FTX CEO Sam Bankman-Fried could also set a negative precedent against cryptocurrencies.

Taking profits after Bitcoin’s 44% monthly rally

Bitcoin and the crypto market had a strong start to 2023, seeing 64% of BTC investors achieve profitability as the BTC price hit $24,000 on January 29. Even struggling Bitcoin miners saw massive growth, with revenue up 50% to $23 million signaling a recovery for the beleaguered industry.

While Bitcoin is currently on pace for the best January performance since 2013, volatility caused by the FOMC could alter the results. With Bitcoin and Ether posting January gains of 40% and 32% respectively, some investors may start locking in profits ahead of US tax season.

Top crypto investors believe more selloffs are on the horizon, and Bitcoin analysts are pushing warnings of a continuation of the long-term downtrend. There is a CME futures “gap” below $20,000, and some traders expect the price of BTC to return to this level at some point in the future.

In the meantime, investors’ risk appetite should remain subdued, and would-be crypto traders might consider waiting for signs that US inflation has peaked, or the Fed is signaling currency hikes. lower interest rates are to be expected. A more transparent roadmap for regulating the crypto industry would also help improve sentiment across the sector.