The Price of Bitcoin Falls as Regulatory Fears Remain Prominent

A series of key macroeconomic data is expected to act as the next major catalyst for the market on Tuesday, with key macroeconomic data likely to have the biggest impact on the crypto sector. BitcoinBTCUSD -0.41% and other cryptocurrencies fell Monday as regulatory pressures continued to weigh on digital asset prices.

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Bitcoin has dropped 1.5% over the past 24 hours to $21,550 in its current price. After gaining 40% this year in a rally that has reinvigorated crypto markets, the largest digital asset has slipped back since last week, and it is now trading below the trading range near $23,000, which it had previously dominated for weeks before. As fears grew of a U.S. regulatory crackdown last week, bitcoin began its latest decline late last week.

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Last Thursday, the Securities and Exchange Commission announced that Kraken had settled charges over its "staking" service, with the exchange agreeing to halt the service and paying a $30 million fine over the matter. As an integral part of Ethereum and other blockchains, staking acts as a backbone to the network that allows token holders to earn yield and as a revenue stream for the exchanges. Coinbase warned of a crackdown by the SEC earlier this week.  It has been announced that Kraken, a crypto trading company, has agreed to stop its stakes and to pay a $30 million fine to the regulator.

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There has been a new headwind in the market on Monday. An order from the New York Department of Financial Services has caused American crypto group Paxos to terminate its relationship with Binance, the world's largest crypto exchange, and to halt the issuance of the Binance USD stablecoin. It is widely accepted that stablecoins play an important role in crypto markets, acting as an onramp to the digital asset universe for investors as well as a key source of liquidity for the industry. With a market capitalization of more than $16 billion, BUSD is the third-largest stablecoin, after Tether and USD Coin, in terms of market capitalization.

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According to Yuya Hasegawa, an analyst at the cryptocurrency exchange Bitbank, stablecoins have become crypto's mainstay for liquidity over the past few years, with BUSD being the third largest by capitalization and the third most traded token. “There is no doubt that the threat to BUSD has the potential to affect the stablecoin landscape and the trading activities of users."

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Regulatory developments are going to be key for crypto prices, but it is arguably the U.S. consumer price index (CPI) data that is due to be released on Tuesday that will have a greater impact on short-term movements. As the Dow Jones Industrial Average and the S&P 500 both continue to be highly correlated assets, Bitcoin and its peers remain highly sensitive to macro developments concerning inflation, interest rates, and recession risk, as both asset classes continue to be highly sensitive to macroeconomic developments.

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There will be considerable attention given to inflation data on Tuesday as traders continue to adjust their expectations regarding the path of the Federal Reserve's rate hikes.

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'Bitcoin faces another test this week, and that is the January U.S. Consumer Price Index,' said Hasegawa of Bitbank. According to the analyst, Bitcoin is still under a downside risk and could go as low as the psychological level of $20,000 in the near term in terms of its price. It is true that if the CPI continues to decelerate in January, the price could retrace some of the loss in value from last week, but it would be prudent to wait and see what the data has to say.

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Besides Bitcoin, EtherETHUSD -1.54%, the second largest crypto by market cap, dropped 4% to $1,475, a drop of 4%. CardanoADAUSD –2.50% plummeted 5% as a result of the 5% decline in the dollar value, while Polygon plunged 10% due to the 5% decline in the dollar value. There was also some volatility with Memecoins such as DogecoinDOGEUSD -0.79% which fell 4%, and Shiba InuSHIBUSD -2.95% which shed 5%.