Investors are worried about upcoming inflation data and recent regulatory moves.
What took place
As investors anticipate new inflation statistics tomorrow and grow more apprehensive about stricter crypto regulation, many cryptocurrencies have fallen this morning.
The price of Ethereum, the second-largest cryptocurrency in the world, has decreased since late yesterday afternoon by almost 3.8% as of 10:21 a.m. ET. Meme tokens like Dogecoin (DOGE -1.42%) and Shiba Inu (SHIB -4.08%) are trading at 3.3% and 6% lower prices, respectively.
What Does It Mean?
The Consumer Price Index (CPI), a fundamental tool used by investors to assess inflation, will be updated tomorrow by the U.S. Bureau of Labor Statistics (BLS). The CPI analyzes the prices of a broad basket of consumer goods and services.
The market still thinks that the Federal Reserve will cut interest rates before the end of the year, even though it looks like the Fed is almost done with its campaign of raising rates. The Fed may increase rates more than anticipated or keep them high for longer, though, if the data doesn’t continue to show that inflation is declining.
That would be awful for cryptocurrencies, which were destroyed in 2022 as a result of rising interest rates, which increase the yield on safer assets and decrease the appeal of risky assets like cryptocurrencies.
Additional regulatory action this morning shook the cryptocurrency markets, according to other news. NYDFS – New York Department of Financial Services told the cryptocurrency startup Paxos to stop issuing Binance USD (BUSD -0.19%), a stablecoin backed by the U.S. dollar. The order, according to NYDFS, is the consequence of “a number of unresolved issues connected to Paxos’ management of its connection with Binance.” Regulators haven’t really cracked down on conventional stablecoins, which are linked 1:1 to a fiat currency or commodity, until now.
Hal Press, who is the founder of the digital asset hedge fund North Rock Digital, stated on Twitter that he believes the stablecoin regulations “have the potential to be quite a major thing for the field structurally and could have a real impact on the market.”
Due to their ease of use and higher reliability than other digital assets, stablecoins have grown to be a significant component of the cryptocurrency market. In essence, they have assisted in acting as an on- and off-ramp for investors wishing to fast trade cryptocurrency.
The NYDFS’s enforcement comes shortly after the Securities and Exchange Commission fined the major cryptocurrency exchange Kraken $30 million and ordered it to stop running its staking-as-a-service program last week. Many industry professionals perceived the action as a component of a larger SEC campaign against staking, which many blockchain networks now employ as their primary consensus mechanism.
The market anticipated increased regulation in the wake of the FTX fiasco, but so far, this legislation has been constrictive and probably hasn’t had the reassuring impact that investors were expecting.
Many investors worry that regulators are concentrating on aspects of the crypto ecosystem that are essential for the business to function. Depending on how the CPI data for January is received, tomorrow’s announcement may also have a significant impact on cryptocurrency values.
As of right now, I remain bullish on Ethereum, a network that has exploded in popularity in recent years and has a ton of practical applications. Shiba Inu and Dogecoin are not my interests.