As the cryptocurrency market appeared on the verge of a financial breakthrough, increased regulatory uncertainty led to a decline in prices, with Bitcoin (BTC) hitting a 7-day low of $26,970 on May 16th. This downtrend also affected Ether (ETH), which traded above the $2,100 level after the Shapella upgrade before dropping to an intraday low of $1,804 on the same day. As digital asset markets continue to contract, they are experiencing outflows surpassing $200 million.
The drop in crypto prices coincides with a move by SEC lawyers to file a response to Coinbase’s lawsuit for clarity on what tokens are securities, calling the suit baseless. SEC Chairman Gary Gensler, speaking at the 27th annual Financial Markets Conference, further emphasized the idea that most crypto tokens are securities and potentially built on non-compliance. This statement comes as Democrats in the US legislature push to solidify SEC’s authority over cryptocurrencies, implying that most tokens could be classified as securities.
The cryptocurrency industry and regulatory bodies have long struggled to find common ground due to misconceptions or mistrust over the actual use of digital assets. After the FTX implosion and the banking crisis that affected banks with crypto assets, it is believed that US lawmakers are discontented with the crypto industry.
Another factor contributing to the pressure on the crypto market is the May 15th decision by Lido, an Ethereum staking DAO and the largest liquidity staking derivative, to open up staked Ether redemptions. This led to $500,000 worth of Ether being redeemed in only three hours, with Boris Povar, CEO of EYWA, suggesting that as gas costs stabilize, the market may experience increased sell pressure. This also coincided with the movement of 428,015 stETH worth $781 million by bankrupt crypto lender Celsius.
With the current risk of the US Treasury running out of funds and straining liquidity, concerns over the debt ceiling weigh heavily on risk assets. Crypto prices maintain a strong correlation with the Dow and S&P 500, and many major banks still anticipate a sharp recession in the US by 2023. Investor sentiment about the current state of the economy remains low, and with the approaching June 1st deadline to negotiate raising the debt ceiling, the narrow window for compromise is expected to lead to continued volatility in the market.
Despite these regulatory and financial challenges, the prospects for cryptocurrency remain both intriguing and ever-changing. As this industry keeps evolving, it is crucial for investors to conduct thorough research and tread carefully in making their decisions.
Source: Cointelegraph
