This week saw the first signs of the return of macroeconomic influence on the crypto market: twice it visibly reacted to events in the economy.
First of all it was the data on inflation in the USA. The published data showed that price pressures in the US economy eased slightly in October. This is a positive signal for markets: the US Federal Reserve (Fed) may not need to raise interest rates as much as expected.
Bitcoin, Ethereum and other major cryptocurrencies also reacted positively to the news.
Why the market mood has changed with the Fed’s interest rate decision
The Fed then announced the results of its two-day interest rate meeting on Wednesday, Dec. 14, and raised its key interest rate by 0.50 percentage points.
The interest rate hike was slightly less steep than the previous ones: the Fed had previously raised the rate four times in a row by 0.75 percentage points each time.
More important were Fed Chairman Jerome Powell’s comments at the press conference. Powell’s statements are being scrutinized by the market for possible implications for the future direction of monetary policy.
Central banks often do not express their positions clearly, and there is usually a lot of room for interpretation of regulators’ actions. And that often leads to strong price swings in all directions during these press conferences.
It was the same this time. Initially, both the stock and crypto markets reacted positively to the interest rate decision itself, but things quickly went downhill again after Powell’s press conference began.
Powell stressed in his statements that the Fed still has a lot of work to do to get inflation under control.
For the markets, this meant that the long-awaited rate change would not materialize – at least in the near term. The mood in the crypto market as a whole changed after the interest rate decision. Asset prices fell on Thursday and Friday. During the 7-day stretch, all major cryptocurrencies recorded losses. Bitcoin, which has been relatively stable, fared the best. And the Binance BNB token declined significantly (minus 14%).
Binance
This week, it wasn’t just macroeconomic issues that drew attention. In the crypto industry itself, there was one company on everyone’s radar: Binance.
The world’s largest cryptocurrency exchange was not immune to the collapse of rival FTX. Binance CEO Zhao got into a verbal altercation with FTX ex-director Sam Bankman-Fried on Twitter. He then announced that Binance would completely sell its stock of FTX native token (FTT).
News resource Coindesk previously published a report that most of the assets of FTX subsidiary Alameda Research consisted of the specified token FTT.
If Binance dumped its FTT assets on the market, it would create enormous pressure from sellers – and the price of the token would fall. One might assume that Binance would benefit from the FTX fiasco. However, the bankruptcy of a major trading platform also undermines trust in cryptocurrency exchanges in general to a certain extent.
And some may ask questions with: if FTX may go bankrupt, how safe are my crypto-assets on other exchanges like Binance? Binance has tried to reassure customers by releasing a report detailing existing crypto-assets, called “Proof of Reserves.” It was created in conjunction with the auditing company Mazars.
However, this disclosure of reserves did not convince many. Huge amounts were withdrawn from Binance this week. On Tuesday, December 13, citing data from analyst firm Nansen, Reuters reported that at least $1.9 billion worth of crypto assets were withdrawn from the exchange in 24 hours. The fact that Binance temporarily halted withdrawals of USDC stabelcoin on Tuesday afternoon also raised concerns. A few hours later, withdrawals resumed.