Why is the crypto market down today?

As analysts thought that the Bitcoin (BTC) price was on the verge of showing signs of a breakout, the crypto market turned to a downtrend amid regulatory uncertainty.

Bitcoin price fell to a 7-day low of $26,970 on May 16 as traders worried that a bigger drop in price was possible, with a CME gap of $24,000.

Similar concerns exist for Ether (ETH), which was trading above the $2,100 level following the Shepela upgrade, following an intraday low of $1,804 on May 16. The digital asset market continues to slide as outflows exceed $200 million.

Cryptocurrency market performance, 1-day chart: Coin360

US deregulation remains a threat

Crypto price plummets a day after SEC attorneys filed Coinbase Responds to Lawsuit for Clarification on What Tokens Are as Securities, Says Suit is Baseless.

Further reiterating the stance that most crypto tokens are securities, SEC Chairman Gary Gensler is speaking at the 27th Annual Financial Markets Conference. May 15 crypto said,

“Business models, however, are built on non-compliance. Their business models are built on customer funds, compounding this, they are fraught with conflicts.

Crypto prices took another blow with Democrats seeking to strengthen the SEC’s authority over crypto in the United States legislature, which could mean that most tokens are classified as securities. According to Gensler’s view, even network nodes are violating securities laws, saying,

“The financial intermediaries in the middle, the nodes in the network, and if they have securities on their platform, they need to come into compliance.”

Connected: The Ordinals Turned Bitcoin Into a Bad Version of Ethereum: Can We Fix It?

The cryptocurrency industry and regulators don’t have a long history due to various misunderstandings or distrust when it comes to the actual use of the digital asset. After the FTX explosion and the banking crisis that affected the few banks that had crypto on the books, some feel that US lawmakers are angry with the crypto industry.

Lido Unlocked Adds Pressure To The Crypto Market

While the Ethereum network was upgraded on April 13 to allow Ether redemption, the largest liquidity staking derivative, Lido, the Ethereum Staking DAO, did not. On May 15, Lido opened redemptions for stETH, allowing $500,000 worth of Ether to be redeemed in 3 hours.

EYWA CEO Boris Povar believes,

“Ethereum is down because on May 15th, the largest Ethereum staking operator Lido opened the possibility to redeem Ether from staking. While the meteoric rise in popularity of memecoin on the Ethereum network has resulted in higher gas costs right now when they stabilize , then the selling pressure in the market may increase.

In addition to faster stETH redemptions, on May 15 a transaction for bankrupt crypto lender Celsius began transferring its token. Celsius moved 428,015 stETH which was worth $781 million at the time of the transfer.

Risky assets hit by concerns over debt ceiling

While some analysts believe that bitcoin could see inflows in the event the United States defaults on its debt, there is a significant risk that the US Treasury will run out of funds, leading to liquidity pressures.

Connected: $28,000 Bitcoin Is In The Cards, But It Won’t Happen Without Struggles

To date, crypto prices are still highly correlated with the Dow and S&P 500 and most major banks still expect the US to experience a sharp recession at some point in 2023.

Investor sentiment about the current state of the economy remains low, according to the US Bank analysis, which included more than 1,000 data points.

Global Economic Health. Source: US Bank

According to Robert Haworth, senior director of investment strategy at US Bank,

“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 by June 1. Deadline With just two weeks to go, the window to achieve an agreement is narrow but not insurmountable. We anticipate continued volatility as both sides present their priorities while working towards a solution.”

With heavy macro headwinds, it is likely that volatility in crypto will continue.

This article does not constitute investment advice or recommendations. Every investment and trading move involves risk, and readers should do their own research when making decisions.