Investors fear the crypto “winter” isn’t over as cryptocurrency prices keep tumbling.
The price of Bitcoin, the world’s largest cryptocurrency, nosedived 47% from the all-time high set in November. Ethereum’s price is down 48%, BNB 43%, cardano 65%, XRP 67%, and solana 65% from their last year highs.
Meanwhile, crypto insider David Marcus, the former head of crypto at Facebook-parent Meta, believes cryptos have entered a prolonged period of falling prices.
Fear that out-of-hand inflation will prompt central banks to raise rates is one of the biggest narratives driving cryptos and other financial markets down. (Learn why monetary tightening hits riskier assets the hardest here)
Another big worry is a looming regulatory threat.
Gary Gensler, the chair of the U.S. Securities and Exchange Commission, which regulates financial markets, recently likened the crypto market to the “Wild West”. He also called for “additional congressional authorities to prevent transactions, products and platforms from falling between regulatory cracks” to protect consumers.
At the same time, the Biden administration is drafting an executive order that will require virtually all federal agencies to assess the challenges, opportunities, and threats that cryptos present.
Regulators around the world seem to be gearing up to clamp down on cryptos in unison.
The Russian central bank has called for a blanket ban on domestic cryptocurrency trading and mining. Later, the head of the financial policy department at Russia’s Ministry of Finance, Ivan Chebeskov pushed back saying, “we need to regulate, not ban,” adding that “regulation is sufficient to protect our citizens,” while banning cryptos would hinder “the industry´s technological development”.
Elsewhere, Thailand has just announced plans to regulate the use of digital assets as a means of payment for goods and services “to avert potential impacts on the country’s financial stability and economic system”, according to a joint press release from The Bank of Thailand (BOT), the Securities and Exchange Commission (SEC), and Ministry of Finance (MOF).
However, Ms. Ruenvadee Suwanmongkol, Secretary-General of the SEC, stressed that the SEC, as the regulator for digital asset business operators, wants “to promote the development of digital asset businesses,” and “places emphasis on utilizing digital assets to develop the country’s economy and society”.
A few countries have taken a more hardline stance.
For example, this week Indonesia’s financial watchdog, the Otoritas Jasa Keuangan, warned financial institutions in the country against offering or facilitating crypto-asset sales.
Many Islamic institutions in the largely Muslim country have called for an outright ban on cryptos because their allegedly speculative nature is contrary to Islamic tenets.
A period of rising interest rates to counter inflation appears to be underway. That historically has weighed down more speculatives areas of the market, including cryptos and equities.
That said, interest rates are rising from very low levels. And given the debt mountain governments piled up during Covid, much higher rates aren’t sustainable, and could be reversed as inflation fizzles out.
This is why regulatory developments around the world are likely to be a much bigger driver in the crypto market this year.
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