Bitcoin’s new-year rally has stalled, hobbled by a crypto crackdown in the United States and market concerns that higher-for-longer interest rates may dampen investor enthusiasm for speculative assets. In addition, Bitcoin plunged below $22,000 after crypto exchange Kraken agreed to shut down its crypto staking operations; altcoins fell as well, with the exception of liquid staking tokens.
Bitcoin plummets amid regulation heat
Bitcoin fell to $21,827 in a 24-hour period, a more than 6% loss that dropped the largest cryptocurrency to its lowest level in roughly two weeks.
Much of the drop was caused by Kraken’s agreement to “immediately” terminate its crypto staking-as-a-service platform for US users and pay $30 million to satisfy Securities and Exchange Commission (SEC) claims that it marketed unregistered securities.
Ether, the second largest crypto by market cap, responded similarly, falling from its previous support well above $1,600 to around $1,546, a 6.6% drop from Wednesday at the same time that was part of a larger market downswing.
Coinbase CEO Brian Armstrong tweeted Wednesday that his company had heard rumors that the SEC wants to prohibit ordinary investors from engaging in crypto staking, the income-generating strategy at the heart of running blockchains such as Ethereum.
Most other cryptos spent the day in the red, with the exception of liquidity staking tokens, such as LDO, the governance token of Lido Finance, the largest liquid staking protocol with around $8.4 billion in staked ether (ETH) on the platform, jumping 10.4% in an hour at one point.
Bitcoin “Whales,” or investors with more than 1,000 BTC, are reintroducing bitcoin to centralized exchanges. This is despite on-chain activity indicating that smaller investors are withdrawing BTC from exchanges.
Because coin movement from exchanges is normally bullish, while the reverse is bearish, one interpretation is that both larger and smaller investors are wrong about the direction of the market, with the former being unduly pessimistic and the latter being overly hopeful.
The development underlines the growing regulatory distrust against the crypto sector, which is still reeling from the fallout from the FTX crypto exchange. Furthermore, there is “wild conjecture” that the crypto industry may find it more difficult to get financial services in the United States.
Crypto Twitter goes after Gary Gensler
Members of the cryptocurrency community appear outraged by the latest accusations brought against the crypto exchange Kraken in the United States in relation to its staking-as-a-service business.
Kraken agreed to pay $30 million in fines and immediately halt offering staking services to retail investors in the United States. However, the services will continue to be sold overseas.
The action appears to have angered not only the crypto community as a whole but also investors, politicians, and industry leaders.
Adam Cochran, a partner at Cinneamhain Ventures and Ethereum bull, called out SEC chief Gary Gensler, branding him as “an agent of an anti-crypto agenda” rather than a regulator and asking why the same standards weren’t used to Sam Bankman-Fried and FTX:
Kristin Smith, CEO of the Blockchain Association, stated on Twitter on February 9 that the current situation is a textbook example of why Congress, not the SEC, should be working with industry leaders to craft appropriate legislation.
In the meantime, Ryan Sean Adams, the creator of the Ethereum show Bankless, stated to his 220,800 Twitter followers on February 9 that the SEC could have avoided charging Kraken out of the blue by taking other measures:
Other community members questioned Kraken’s registration with the securities regulator, claiming there was “no clear path” to authorize crypto staking. In addition, others speculated that it might have an impact on Ethereum’s consensus layer, considering that Kraken is the fourth-largest validator on the Ethereum blockchain, according to the on-chain monitoring platform Nansen.
BTC shows a correlation with FTX
According to analysis, the collapse of FTX and related occurrences had a greater impact on the price of Bitcoin during Q4 than macroeconomic factors such as rate hikes.
According to Messari research analysts Sami Kassab and Chris Collar’s “State of Bitcoin Q4 2022” study, the collapse of the exchange resulted in a 25% reduction in the price of Bitcoin.
The analysis noted that changes in the federal funds rate had a far lesser impact on Bitcoin prices, even after 75 and 50 basis point increases. It also stated that active wallets climbed by 2% over the previous quarter as Bitcoin was transferred from centralized exchanges to self-custodial wallets during the period.
A study paper released earlier this week by the Federal Reserve Bank of New York reached a similar result. Despite the Federal Reserve of the United States continuing to hike interest rates at an unprecedented rate, Bitcoin has had a great start to 2023, gaining by just under a third from $16,557 to $21,888.
