News Updates May 16, 2023
1. Why is the crypto market down today?
The crypto market is down today as investor fear over a regulatory crackdown on the sector remains and the fight over raising the debt ceiling carries on.
Right as analysts thought that Bitcoin
BTC $27,002 was on the cusp of showing signs for a price breakout, the crypto market took a turn to the downside amid increased regulatory uncertainty.
Bitcoin price hit a 7-day low on May 16 at $26,970 as traders worry that a larger price dip is possible, and a CME gap sitting at $24,000.
U.S. regulatory remains a threat
The crypto price drop comes a day after SEC lawyers filed a response to Coinbase’s lawsuit for clarity on what tokens are securities, calling the suit baseless.
Further reiterating the stance that most crypto tokens are securities, SEC Chairman Gary Gensler speaking at the 27th annual Financial Markets Conference on May 15 said crypto,
“Business models, though, tend to be built on non-compliance. Their business models tend to be built on customer funds, commingling it, they’re rife with conflicts.”
Crypto prices were dealt another blow with Democrats in the United States legislature seeking to cement the SEC’s authority over crypto, which may mean most tokens are classified as securities. According to Gensler’s view, even network nodes are in violation of securities laws saying,
“Financial intermediaries in the middle, nodes in the network, and they need to come into compliance if they’ve got securities on their platforms.”
The cryptocurrency industry and regulators have a long history not getting along either due to various misconceptions or mistrust over the actual use case of digital assets. After the FTX implosion and banking crisis which affected some banks that had crypto on the books, some feel US lawmakers are angry with the crypto industry.
Lido unlock adds pressure to the crypto market
While the Ethereum network upgraded on April 13 to allow staked Ether redemptions, the largest liquidity staking derivative, Lido, an Ethereum staking DAO, did not. On May 15, Lido opened up redemptions for stETH which led to $500,000 worth of Ether to be redeemed in 3-hours.
Boris Povar, CEO of EYWA believes,
“Ethereum is down because on May 15, Lido, the largest Ethereum staking operator, opened the possibility of redeeming Ether from staking. While gas costs are high right now due to the meteoric rise in the popularity of memecoins on the Ethereum network, when they stabilize, the market could see increased sell pressure.”
In addition to the fast stETH redemptions, on May 15 a transaction for bankrupt crypto lender Celsius began shifting their tokens. Celsius moved 428,015 stETH which was worth $781 million at the time of transfer.
Concerns over the debt ceiling weigh on risk assets
While some analysts believe Bitcoin could see inflow in the event the United States defaults on its debt, there is a significant risk that the U.S. Treasury will run out of funds, straining liquidity.
To date, crypto prices are still highly correlated with the Dow and S&P 500 and most major banks still expect the U.S. to experience a sharp recession at some point in 2023.
According to U.S. Bank analysis which incorporates more than 1,000 data points, investor sentiment about the current state of the economy remains low.
According to U.S. Bank Senior Investment Strategy Director Robert Haworth,
“President Joe Biden met with Congressional leaders to negotiate raising the debt ceiling after Treasury Secretary Yellen indicated the Treasury could run out of money to pay the government's obligations as soon as June 1. With just over two weeks before the deadline, the window for achieving a compromise is narrow but not insurmountable. We anticipate continued volatility as both sides present their priorities while working toward a solution.”
With heavy macro headwinds, it is likely the volatility in crypto will remain.
2. Bitcoin trader eyes CME gap with $24K BTC price dip target in play
Bitcoin may be in line for a final trip lower before recovery, analysis forecasts, with BTC price still lacking direction.
Data from Cointelegraph Markets Pro and TradingView showed BTC/USD still focusing on the $27,000 mark, having dipped to $26,870 after the daily close.
Still lacking direction, traders hoped the pair would either attempt to exit its narrow range or touch more significant levels up or down.
For popular trader Crypto Ed, potential targets included the “gap” in CME futures created at the weekend.
“It’s really on the lower timeframe where the action is now; higher timeframe is not really exciting,” he summarized in his latest YouTube update on the day.
The CME gap to the downside lies between $26,500 and $26,800, just below the overnight lows.
Crypto Ed continued to say that a bounce after the gap could take BTC/USD back to its range highs at $28,800 but that a downside “possibility” left $24,000 in play.
Other market participants were equally cautious, with trader Jackis describing Bitcoin as “very hard to read” under current circumstances.
“My personal take is we will have Weekly continuation and Daily breakdown,” he concluded in Twitter analysis on the day.
To that end, the chances of higher levels to come on weekly timeframes remained despite the current pullback.
“Important to note, that the weekly structure remains bullish & that whether from here or should any deeper pullback come is a potential HL in a bullish trend which should lead to a break of 31K until proven otherwise,” Jackis explained.
Analyst warns over debt ceiling volatility
Elsewhere, macro considerations increasingly began to include the unfolding debt ceiling crisis in the United States.
With the June 1 deadline for potential default rapidly approaching, markets were already feeling the pressure, trader Skew suggested.
“Lack luster price action primarily due to US debt ceiling becoming a probable crisis, however getting closer to the June 1 deadline,” he tweeted about the U.S. Dollar Index (DXY).
“Implications will be what big funds are eyeballing into late may (raised or suspended). Expect heightened volatility & waning liquidity in coming weeks, especially around the deadline period.”
The DXY, traditionally but not exclusively inversely correlated with BTC price performance, continued to trend lower on the day after a week of snap gains.