Entering the crypto market is not meant for the fainthearted. The 2022 crypto market crash shook the cryptocurrency world, largely a result of the fall of the FTX exchange, which resulted in a lot of investors losing access to their carefully monitored funds.
Early 2023 saw a resurgence of crypto with bitcoin’s price shifting over the $30,000 mark in April. But volatile as it is, August saw asset prices plunge below $25,200. Reports indicate that the total value of all cryptocurrencies has fallen to $1.02 trillion on 1 September 2023—a whopping 3.7% drop. While some assure that the decline is normal within the bear market and will rise by the end of the year, others are not so sure and predict another full-blown crypto crash in September 2023.
A Wall Street Journal report indicated that Musk’s SpaceX wrote down its bitcoin holdings value by $373 million over 2021-22 and had sold an undisclosed amount of the cryptocurrency. This caused rumors about the sale of the company’s entire bitcoin holdings but the actual numbers were unclear. Some have linked the 10% bitcoin price drop to the news, but Musk is not solely to be blamed for the crypto market being down recently.
The Fall of FTX and its Impact on the Crypto Market
During a particularly significant slump in the market following the collapse of Terra’s LUNA crypto token and other market instabilities, reports by CoinDesk introduced fears about Alameda Research and FTX, both run by Bankman-Fried, and whether they had undisclosed financial risks that might hold the companies back from meeting their financial obligations.
The ensuing chaos saw no forthcoming bailouts for Bankman-Fried as its rival, Binance, backed out of a buy-out deal following concerns of mishandled customer funds. The company was forced to file for bankruptcy. FTX also reported “unauthorized transactions” where sources suspect about $477 million could have been stolen.
The fall of the third-largest crypto exchange of the time disturbed the balance of the crypto market, causing several major sell-offs from investors who no longer wanted to remain in the sector. The echoes of this crypto crash are still felt today but there are more recent reasons for why we see the crypto market down.
Hawkish Federal Reserve Tilt Due to Ongoing Inflation Woes
Inflation remains the word of the day as the Federal Reserve maintains its focus on bringing the inflation rates down in the U.S. Despite existing high interest rates, Fed Chair Jerome Powell addressed the need to further increase rates to try and bring inflation below 2%. This has prepared people for another possible rate hike before the end of the year.
“Restrictive monetary policy will likely play an increasingly important role. Getting inflation sustainably back down to 2% is expected to require a period of below-trend economic growth as well as some softening in labor market conditions.” Powell, Reuters
But how does this bring the crypto market down?
Rising U.S. Bond Yields and its Link with the Crypto Crash in September
High interest rates by the Federal Reserve have pushed the Treasury to higher level yields than it has seen in years. August witnessed the 10-year Treasury yield rising to 4.31%. For investors, this means safer investments and stable returns on their money. While this sounds like a good thing, it is likely one of the causes for the crypto market being down in September 2023. The cryptocurrency sector, which includes tokens like Bitcoin, has been hit by losses of over 10%, and it is not the only market suffering. High-growth investment funds, stocks, and the technology sector have also felt the change.
Data suggests that U.S. investors have been selling stocks and putting money into safer money market funds due to the rising yields. The fear of a possible recession also has investors holding their money close. The SEC’s decision-making has also been associated with pushing the crypto market’s downward spiral.
Crypto Market Down Due to SEC Delay on Spot Bitcoin ETF Application
The U.S. Securities and Exchange Commission (SEC) has further delayed its decision on six Bitcoin ETF applications, which has greatly worried investors. Among the applicants, Bitwise in turn withdrew its application as a result of the delay. Many have cited this reason for the shift in the status of cryptocurrency, and await the SEC’s decision on ETF as previous incidents have indicated a price rise following such announcements.
In August, a court mandate to the SEC to take another look at Grayscale’s ETF application was linked to a 5% increase in Bitcoin prices. The SEC appears cautious in its Bitcoin ETF approvals while the market hopes a decision in its favor will attract more investors to the market. The decision has been postponed to the end of October, however, experts report that further delay might be likely.
Optimistic cryptocurrency investors are hopeful that the market will stabilize following the SEC decisions, but the results appear unlikely to be announced anytime soon.