The crypto market is down today, paring Ethereum's post-Shapella rally with the total cryptocurrency market capitalization losing nearly 4% in 24 hours.
Right as some analysts thought that Bitcoin (BTC) was on the cusp of confirming a new bull market, the cryptocurrency market took a downturn amid regulatory uncertainty and signs of weakening macroeconomic conditions.
Crypto market down 4%, Bitcoin below $30,000
Bitcoin price hit a 7-day low on April 19 at $29,158 after failing to maintain the key $30,000 level. Moreover, some traders are worried that a further correction could revisit the bear market lows.
Similar worries exist for Ether (ETH), which breached the $2,100 level post-Shapella upgrade and hit a 11-month high, followed by a 7-day low of $1,972 on April 19 despite ETH staking deposits surpassing withdrawals the day before.
U.S. regulatory crackdown fears
On April 18, Gary Genseler, the SEC Chair, appeared before the United States House Financial Services Committee for an oversight hearing, which likely spooked crypto traders.
Related: Crypto regulation: Does SEC Chair Gary Gensler have the final say?
During the hearing, Gensler refused to definitively answer whether Ethereum was a commodity or security despite repeated requests from committee members to do so.
Gary Gensler and Representative McHenry arguing on whether $ETH is a commodity or a security, with Gensler unable to answer the question pic.twitter.com/DTMtazYmuS— Cointelegraph (@Cointelegraph) April 19, 2023
On April 17, the SEC filed a lawsuit against cryptocurrency exchange, Bittrex. The lawsuit alleges Bittrex was operating an unregistered national securities exchange, broker, and clearing agency.
Gensler issued the following warning,
“If this field has any chance of survival and success, it’s time-tested rules and laws to protect the investing public. Don’t have your hand in the customer’s pocket, using their funds for your own platform.”
Hawkish Fed, weaker economy weigh on risk- assets
Despite banking crisis fears and hopes of a dovish U-turn, Federal Reserve chair Jerome Powell seems committed to reducing inflation through further hikes.
Powell and the Fed continue to reiterate the goal of bringing inflation down to 2%. In a press conference on March 28, Powell reiterated,
“We remain committed to bring inflation back down to our 2 percent goal and to keep longer-term inflation expectations well anchored. Reducing inflation is likely to require a period of below-trend growth and some softening of labor market conditions. Restoring price stability is essential to set the stage for achieving maximum employment and stable prices over the longer run.”
The market seems to agree that interest rates will continue to rise with the next Federal Open Markets Committee (FOMC) meeting scheduled for May 3, 2023.
This will be an important date for cryptocurrency investors as well since the sector is still highly correlated with the Dow and S&P 500.
Meanwhile, the Fed is fighting headwinds of its own as major banks still expect the U.S. to experience a sharp recession at some point in 2023 that will likely push down risk-on asset prices including cryptocurrencies.
According to U.S. Bank analysis, investor sentiment about the current state of the economy remains low and trending downwards.
According to U.S. Bank,
“Inflation, interest rates and earnings remain key to equity returns. Persistent inflation, rising interest rates, and uncertainty over the pace of earnings growth in 2023 remain headwinds to advancing equity prices.”
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.