Crypto blessings to you all, and welcome to my blog. This is the start of a great weekly reflection series I’ve been dying to start called “Wordsmith Weekly,” in which I would like to run through the most essential latest happenings in the industry to keep everybody updated each week. So let’s jump in!
With Bitcoin surging almost 50% from the 2023 opening price of $16,500 to the current $24,600 level, it’s been an exciting time in the market since 2023 rolled through. In fact, the price surge allowed BTC to hit $25,000 and test the August 2022 resistance, putting it back at a six-month high.
As BTC pushes higher, it’s injecting optimism back into the industry as the total market cap for the number-one ranked cryptocurrency ($478 billion) finally “flips” the market cap value of Visa ($469 billion) for the third time in its history - and the media still says BTC has no place in the economy?
Despite the newly birthed optimism in the crypto sector, it’s still a time to be very cautious as a host of macroeconomic, sociopolitical, and regulatory factors are hanging over the industry. These fundamentals put Bitcoin in a tricky position, with some analysts claiming that BTC should be sinking instead of soaring.
With inflation running rampant in the economy, central banks are still raising interest rates. Although the US Federal Reserve has started to dampen its aggressive rate hikes, which sent shockwaves through the economy in 2022, it’s still expected to keep interest rates relatively high until the macroeconomic data shows that inflation is cooling down. With interest rates staying high, it’s unlikely that large institutions would be willing to take on additional risk. That means everybody will continue watching for that CPI report every month, hoping to see reduced figures to ease anxiety. Fortunately, the CPI has been falling for seven months in a row:
Alongside inflation, we need to remember that war is still occurring on European soil, creating an aura of uncertainty about what might happen next. A turbulent turn of events in the war could send further ripples through the global economy, which would seep into our beloved crypto markets.
If that wasn’t bad enough, US regulators are continuing to clamp down on crypto projects this month. The SEC (the US-based financial regulator) is launching a new lawsuit against the (previously) third-largest stablecoin, BUSD. The regulator issued a Wells Notice to Paxos - the company that issues BUSD - on February 12th. A Wells Notice isn’t something a company ever wants to receive, because it signals impending enforcement from the SEC.
Following the Wells Notice, the New York Department of Financial Services (NYDFS) ordered the Paxos Trust to immediately stop issuing BUSDT, the dollar-pegged Binance USD stablecoin. The SEC alleges that BUSD is an unregistered security, operating out of the bounds of the regulation. It seems that the SEC is really starting to clamp down on crypto projects across the board. A week before hitting Paxos with the Wells Notice, the SEC announced that crypto staking services violated securities law, forcing prominent exchanges like Kraken to close their staking product.
Paxos is complying with the orders from the regulators, but they have stated they intend to fight the lawsuit as they categorically disagree that they are operating an unregistered security. Furthermore, Paxos has announced that they will terminate their partnership with Binance, which allowed them to issue BUSD under a branding deal. The NYDFS is watching over Paxos to ensure they continue fulfilling their redemption obligations.
Even with the market looking bullish, the entire stability of the industry is standing on shaky grounds with overarching regulation. If the regulators continue to rule by the hammer, it might cause uncertainty about which project they will go after next. That’s without mentioning the European war, the fallout from FTX, and the increasing interest rates. So overall, it’s best to stay cautious during uncertain times and ensure you aren’t taking too much risk.
Hope you all have a great rest of your week. See you next time for more Wordsmith Weekly!
About: The Wordsmith has worked with some of the biggest projects in the DeFi and Web3 space. If you want to learn more about his content writing services, head to https://www.wordsmithcrypto.com/.