The crypto market remains volatile after the June 14 Federal Open Market Committee (FOMC) announcement and Federal Reserve Chairman Jerome Powell’s presser revealed that the central bank will suspend rate hikes for June.
Although this move is in line with investors’ expectations, the crypto market has yet to show any bullish momentum. Powell also mentioned that at least two more rate hikes would be needed in the future.
The price of Bitcoin (BTC) started the day trading above $26,000, but has since returned to a 24-hour low of $25,791 following the FOMC announcement. Some analysts are predicting that a drop to $25,000 is inevitable based on the current state of BTC derivatives data.
Muted crypto price action and lack of bullish response to today’s rate hike pause may be the lingering effect of Securities and Exchange Commission (SEC) charges against Binance and Coinbase.
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FOMC Tanks Crypto and Some Stocks
The stock market fell sharply on June 14 after the FOMC decision, with the Dow Jones losing 200 points within minutes of the announcement. Another major stock index, the S&P 500 index, hit a 13-month high.
As Powell decided to put interest rate hikes on hold, the Fed reiterated its goal of reducing high inflation.
In the policy show, the Federal Reserve said:
“In determining the amount of additional policy tightening that might be appropriate to bring inflation down to 2% over time, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects the economic activity and inflation, and financial developments.
The wording shows a potential return to interest rate hikes in the future. To date, crypto prices are still highly correlated with the Dow Jones and S&P 500, and most major banks still expect the US to experience a deep recession at some point in 2023. That didn’t stop major stock indices from hitting yearly highs after the United States. debt ceiling agreement.
According to analysis by the US bank, which incorporates more than 1,000 data points, investor sentiment regarding the current state of the economy remains weak.
According to Robert Haworth, senior director of investment strategy at US Bank:
“Overall, the US economy is slowing, but not reaching recession.”
The suspension of rate hikes leads to volatility in stocks and cryptocurrencies.
Regulation of the crypto sector remains the main threat
Regulation has been a constant in the recent cryptocurrency news cycle. While the European Union has unveiled a digital asset framework called the Crypto-Asset Markets Act, the United States seems intent on regulating through SEC enforcement.
On June 5 and 6, the SEC filed civil lawsuits that brought to 61 the number of cryptocurrencies that the agency says are securities, worth $100 billion.
One of the 61 crypto tokens is Algorand (ALGO), a token that in 2019 SEC Chairman Gary Gensler called “big tech,” which seems to contradict this latest enforcement action.
Other major crypto tokens specifically mentioned as securities include Binance USD (BUSD), BNB (BNB), Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Cosmos (ATOM), The Sandbox (SAND ), Decentraland (MANA), Axie Infinity (AXS) and COTI.
The recent action by the SEC adds to a long history of disputes, misconceptions and mistrust about the real use case of digital assets. After the FTX implosion, some believe US lawmakers are angry with the crypto industry. The most recent battle centers around how centralized exchanges (CEX) can use client funds.
Not all lawmakers are comfortable with Gensler’s actions. Ohio Rep. Warren Davidson introduced the “SEC Stabilization Act” in the House of Representatives on June 12. The bill would remove Gensler from the chair and redistribute power within a committee.
TVL and volume remain low
The CEX attack also increased Bitcoin exchange inflows and outflows. FX inflows indicate heightened pressure from the sell side, while outflows are typically in self-custody assets.
Despite the net movement of flows towards on-chain self-custody, decentralized finance (DeFi) has not seen growth. Total Locked Value (TVL) is a common metric used to examine the health and sentiment of the crypto market. According to DefiLlama, TVL across all protocols has fallen 0.5% in the past 24 hours and lost $120 billion since April 5, 2022.
Related: Crypto industry ‘destined’ to focus on BTC due to regulators: Michael Saylor
With strong macro headwinds, upcoming rate hikes, and low volume, crypto volatility is likely to persist for the foreseeable future.
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