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Bitcoin and other cryptocurrencies began declining on Wednesday, with the world's largest cryptocurrency falling below US$22,000 as investors grow skittish about the Federal Reserve's intent to continue raising rates.
At the time of writing, Bitcoin (BTC) is trading at US$21,873.72 (-3.05%) while Ethereum (ETH) is trading at US$1,545.69 (-4.58%). Major altcoins such as BNB, Polkadot (DOT), and Avalanche (AVAX) have also been trading in red within the same period.
"Bitcoin is lower as some investors start betting on more ongoing Fed rate increases. Parts of Wall Street are getting concerned that they may have been too optimistic with how high rates will go," Oanda's Edward Moya said on Tuesday, adding that the SEC's (Securities Exchange Commission) fine on Kraken also contributed to the sudden reverse in gains. (more on this below)
Meanwhile, the stock market also took a tumble, with the S&P 500 and the tech-heavy Nasdaq Composite dipping 0.9% and 1.02% respectively on Thursday. In Blockhead's recent roundups, we've said that it's important to keep in mind how interest rates have jumped from 0% to over 4% in 2022, and are set to rise further in 2023, which means that investors should still err on the side of caution.
The Feds gave no clear indication of a potential pause in rate hikes at the recent FOMC meeting. Furthermore, Federal Reserve Governor Christopher Waller recently reminded investors that interest rates will keep climbing.
“Interest rates [might be] higher for longer than some are currently expecting,” he said Wednesday.
Investors are now looking towards the CPI data slated to be released on Feb 14, which will hopefully give both the crypto and broader financial markets a more accurate indication of how effective the rate hikes have been.
FTX wants its donations returned
Bankrupt cryptocurrency exchange FTX and its debtors have sent confidential letters to politicians and other political beneficiaries, requesting them to return donations made by former FTX CEO Sam Bankman-Fried.
According to a press release last week, the recipients are required to return the funds by 28 Feb via a "special email account" - FTXrepay@ftx.us, or risk facing legal actions.
“To the extent such payments are not returned voluntarily, the FTX Debtors reserve the right to commence actions before the Bankruptcy Court to require the return of such payments, with interest accruing from the date any action is commenced,” the group, dubbed as "FTX Debtors", said in the statement.
This announcement follows public requests from FTX in late December for recipients to return the donations voluntarily.
Kraken cops SEC fine
US-based cryptocurrency exchange Kraken has copped a US$30 million fine from the SEC, after the financial watchdog said that two Kraken subsidiaries failed to register the offer and sale of their staking programs.
According to a statement on Thursday, the SEC alleged that Kraken's staking service was an illegal sale of securities, and that the firm "touts that its staking investment program offers an easy-to-use platform and benefits that derive from Kraken’s efforts on behalf of investors, including Kraken’s strategies to obtain regular investment returns and payouts".
In a blog post, Kraken said it would will automatically unstake all US client assets enrolled in the on-chain staking program. Those assets will no longer earn staking rewards, with the development applying to all staked assets except for staked ether (ETH), which will be unstaked after the Shanghai upgrade. US clients will also not be able to stake any additional assets, including ETH.
The SEC's move on Kraken sent the crypto markets tumbling, with investors concerned that other major exchanges could be impacted.
"Kraken is a big player, but it seems this probe on offering unregistered securities could have a settlement, which will just pave the way for better guidance on how operations should be going forward. How deep this probe is still unknown as both the SEC and Kraken have yet to comment," explained Oanda's Edward Moya.
Meanwhile, Coinbase CEO Brian Armstrong said that the company has heard "rumors" that the US Securities Exchange Commission (SEC) intends to implement a complete ban on crypto staking for retail users in the US.
In a Twitter thread on Wednesday, Armstrong maintained that staking is "not a security", and that it allows investors to "participate directly in running open crypto markets".
"Regulation by enforcement doesn't work. It encourages companies to operate offshore, which is what happend with FTX," Armstrong added.
Shares of Coinbase plunged after news of the SEC's lawsuit against Kraken. It's currently trading at US$59.63 (-14.13%).
According to data from CoinMarketCap, the global crypto market cap stands at US$1.02 trillion, a 4.95% decrease since yesterday. The total crypto market volume over the last 24 hours is US$80.08 billion, a 42.03% increase.
Fear & Greed Index
The Crypto Fear and Greed Index uses 5-6 measurements to assess the current sentiment of the market and then rates that level of emotion on a scale of 1-100 – 1 is extreme fear and 100 is extreme greed.
Risk appetites in crypto continue to remain at healthy levels – the index is down from last week's 56 and currently stands at 48, indicating “greed." Sentiment has improved significantly since the FTX implosion in November, during which the index fell to the low twenties.