The Cryptocurrency Market Faces a Double Whammy: Inflation-Fueled Rate Hike Doubts and the SEC Regulatory Storm

The Cryptocurrency Market Faces a Double Whammy: Inflation-Fueled Rate Hike Doubts and the SEC Regulatory Storm The cryptocurrency market has received a double blow from a surprise rise in US inflation in September and subsequent regulatory actions. The 0

The Cryptocurrency Market Faces a Double Whammy: Inflation-Fueled Rate Hike Doubts and the SEC Regulatory Storm

The cryptocurrency market has received a double blow from a surprise rise in US inflation in September and subsequent regulatory actions. The 0.2% increase in inflation, exceeding expectations, raised concerns about the Federal Reserve possibly pausing rate cuts, with comments from Atlanta Fed President Raphael Bostic further fueling market anxieties. Additionally, the US Securities and Exchange Commission (SEC) lawsuits against Crypto.com and CumberlandDRW, along with its crackdown on market manipulation, have amplified market volatility.

CPI Rise Hammers Rate Cut Expectations, Crypto Prices Fall

The US Labor Department's release of a higher-than-expected September consumer price index (CPI) dampened market expectations for the Fed to continue cutting interest rates in November. Atlanta Fed President Raphael Bostic stated that he was open to pausing rate cuts at the next meeting in November if economic data supported it. Bostic mentioned in an interview that the volatility in economic indicators meant that the Fed should pause rate cuts in November to remain patient and observe the data's trajectory. This rise in inflation data, coupled with the increase in weekly jobless claims, contributed to heightened market volatility.

Despite this, Bostic remained open to resuming rate cuts later this year, arguing that the current economic state is heading towards neutrality, and a 25 basis point cut wouldn't bring about significant impact. However, the release of inflation data had an immediate impact on the cryptocurrency market.

Bitcoin (BTC) fell roughly 4% in the US afternoon trading session, dropping to $59,000, marking its lowest level since the Fed's surprise 50 basis point cut in mid-September. Other cryptocurrencies, such as altcoins, Ethereum (ETH), and the broader CoinDesk 20 index, also saw declines, with Ethereum dropping 3.5% and the CoinDesk 20 index falling almost 3%.

Quinn Thompson, founder of hedge fund LekkerCapital, pointed out that concerns over the Fed not cutting rates as aggressively as anticipated due to the CPI and oil price increases spurred by Middle East tensions are influencing the market. Bostic's hawkish comments about potentially pausing rate cuts could be the trigger for leveraged traders to take profits. Indeed, this market sell-off resulted in the liquidation of approximately $147 million in leveraged long positions.

SEC Steps Up Crypto Regulation, Multiple Firms Accused

Meanwhile, the US Securities and Exchange Commission (SEC) continues its regulatory crackdown on the cryptocurrency market. Crypto.com received a Wells notice from the SEC and initiated legal action to defend itself. The SEC intends to sue the digital asset exchange, alleging it operated as an unregistered broker-dealer and clearing agency. Crypto.com CEO Kris Marszalek voiced his displeasure on Twitter, stating that the SEC's unauthorized overreach and illegal rule-making in crypto must stop.

In another instance, the SEC accused CumberlandDRW of operating as an unregistered trader for over $2 billion worth of crypto assets. This lawsuit once again raised anxieties about the regulatory challenges facing US cryptocurrency companies. Cumberland responded by stating that they wouldn't alter their business operations or assets providing liquidity due to the SEC's actions.

The SEC's lawsuits are just the latest regulatory moves by the US government against cryptocurrencies this week. On Wednesday, the Department of Justice indicted four market makers and over a dozen individuals on charges of market manipulation. SEC Chairman Gary Gensler has expressed skepticism about Bitcoin or cryptocurrencies' popularity as a means of payment, dubbing the industry "scammy" and claiming that the industry's "leaders" are either in jail or soon will be.

Thompson of Lekker added that there will be a lot of noise from now until the US election in November, and Bitcoin is likely to remain range-bound until then.

Bitcoin Price Headed for a Sub-$50,000 Drop?

The Bitcoin market is currently in a volatile period, with the price potentially heading towards a critical psychological support level of $50,000. Analysts attribute this potential decline to changing liquidity conditions and some unsettling technical signals.

Firstly, is the dwindling liquidity a harbinger of a market correction? Analyst Cole Garner expressed his concerns about the current market condition through social media platforms. He warned that liquidity on the Bitcoin network is tightening, which could signal an impending investor capitulation. Garner specifically pointed to the LiquidVision index, which gauges the overall level of liquidity provided by central banks. While this index might foreshadow future buying opportunities, a final drop could occur before the market rebounds.

Another worrying factor is the decreasing supply of stablecoins, particularly Tether (USDT) and USDCoin (USDC). The decline in supply could restrict the market's purchasing power, exerting downward pressure on the Bitcoin price.

However, despite these short-term bearish signals, Garner remains optimistic about Bitcoin's long-term prospects. He pointed out that the overall market structure remains bullish, and Bitcoin has been consistently hitting new highs in recent times. Some market participants anticipate a trend reversal before the end of October, as this month historically has been a good period for Bitcoin performance. Additionally, external factors like potential economic stimulus plans from China could trigger a fresh influx of capital into the cryptocurrency market.

Veteran trader Peter Brandt further predicts that Bitcoin's price will reach $135,000 within a year if it can hold onto key support levels.

Currently, Bitcoin is trading around $60,000, with the market anxiously anticipating a potential price retracement. A pullback below $50,000 could present an attractive buying opportunity for long-term investors.

In this uncertain backdrop, conducting cautious and thorough market analysis is more crucial than ever for all investors.

(This article is based on information from Jiemian Finance.)