Rising interest rates, delayed Bitcoin ETFs, global financial turmoil, and other regulatory pressures are leading to poor performance in the crypto market.Why did the crypto market decline this week?Rising interest rates, delayed Bitcoin ETFs, global financial turmoil, and other regulatory pressures are leading to poor performance in the crypto market
Rising interest rates, delayed Bitcoin ETFs, global financial turmoil, and other regulatory pressures are leading to poor performance in the crypto market.
Why did the crypto market decline this week?
Rising interest rates, delayed Bitcoin ETFs, global financial turmoil, and other regulatory pressures are leading to poor performance in the crypto market.
Several economic factors have led to this decline. As interest rates exceed the 5% mark and inflation remains above the 2% target, the borrowing costs of households and businesses are rising, putting pressure on consumer spending and economic expansion. This means that there is less funds available for savings, which may force people to give up investing just to pay their monthly bills.
Due to an inflation expectation of 3.6% for 2024 and a year-on-year increase of 5.5% in average hourly wages, which is the fastest pace since 2020, the Federal Reserve may maintain or even raise interest rates in the coming months. Therefore, the high interest rate scenario is beneficial for fixed income investments, which is unfavorable for cryptocurrencies.
The inflation rate has fallen from its peak of 9% to the current 3%, while the S&P 500 index is only 9% below its historical high. This may indicate the carefully planned "soft landing" by the Federal Reserve, indicating that the likelihood of a long-term and deep recession is decreasing, temporarily undermining the investment theory of Bitcoin as a hedge.
Factors Emerging in the Cryptocurrency Industry
Investors have high expectations for the approval of spot Bitcoin Exchange Traded Funds (ETFs), especially with the heavyweight recognition from BlackRock and Fidelity. However, as the US Securities and Exchange Commission (SEC) continued to delay its decision, these hopes were dashed due to concerns about insufficient safeguards for manipulation. More complex, unregulated offshore exchanges using stable currencies continue to engage in a large number of transactions, raising questions about the authenticity of market activities.
The financial difficulties within the Digital Currency Group (DCG) have also had a negative impact. A subsidiary of DCG is working hard to cope with over $100 million in debt from the Gemini Exchange. In addition, Genesis Global Trading recently announced bankruptcy due to losses caused by the collapse of Terra and FTX. If DCG fails to fulfill its obligations, this unstable situation may lead to the forced sale of positions in grayscale Bitcoin trusts.
Further exacerbating the market predicament is regulatory tightening. The United States Securities and Exchange Commission has made a series of accusations against Coin An and its CEO Zhao Changpeng, accusing them of misleading practices and the operation of unregistered exchanges. Similarly, Coinbase faces regulatory scrutiny and lawsuits over the classification of certain cryptocurrencies as securities, highlighting the ambiguity of US securities policy.
Despite the global economic slowdown, the US dollar continues to strengthen
There are also signs of trouble caused by the slowdown in China's economic growth. Economists have lowered their growth forecasts for the country, with both imports and exports showing a decline in recent months. Compared to the same period last year, foreign investment in China decreased by over 80% in the second quarter. Worryingly, the outstanding bills of Chinese private developers reach an astonishing $39 billion, posing a significant threat to the economy.
Although the global economy may deteriorate due to its scarcity and fixed currency policies, which may enhance the attractiveness of Bitcoin, investors have shown a tendency to flock towards the safety of the US dollar.
As the cryptocurrency market addresses these multifaceted challenges, various economic factors and regulatory developments will undoubtedly continue to shape its trajectory in the coming months.
The main focus of the second half of this year's coin industry is watching Ethereum performances! As long as we ambush the right plate, this Cancun upgrade can also eat a lot!
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