At the time of writing this article, the king of cryptocurrencies, Binance, is trading at $26,644. However, the volumes are still weak. Investors are trying to make sense of the price movement this week as we approach Friday. Following a promising start, there was a rapid drop after the Fed meeting and a subsequent rapid increase in altcoins.
The statements made during the Fed meeting form the basis of this drop. Powell clearly stated that a 1% interest rate increase is insignificant, but they may tighten further under the required conditions. The decline in inflation paused due to the increase in fuel prices, and the September inflation data to be announced next month will likely be higher.
So, what should we understand when Powell says “if necessary” in an environment where inflation has not subsided and things could get worse? The market has fully understood this.
The issue of MtGox sales being delayed until next year was previously priced in by the market, and we experienced a sell-off with the official announcement. This can be considered as the second important reason.
Even though the MtGox issue is resolved, FTX and SilkRoad BTC will be sold in the coming months. Weekly sales worth hundreds of millions of dollars. These sales will shake the markets as the cumulative volume of cryptocurrencies has dropped to $18 billion per day. Therefore, weak risk appetite and failed tests at resistance levels are the third reason for the drop.
The US is preparing for its next move. What worries investors is the lawsuit that the US Department of Justice will file against the giant crypto exchange Binance. CFTC and SEC have targeted Binance with more than 10 offenses. If it is alleged that illegal transfers were tolerated for armed groups deemed illegal by the US, this is a criminal case. This is the fourth major reason for the drop.
Lastly, we should mention a psychological reason. Historical data is crucial for cryptocurrencies. September has brought more losses to investors since 2016. This undermines investors’ risk appetite and therefore supports the drop.
It is difficult to predict what will happen next. There is no guarantee that the historical data of the past four years will repeat itself. Moreover, since 2019, we also have a paper Bitcoin in our lives. Yes, derivative markets and futures have created the paper version of the king of cryptos. You can buy and sell options and profit from its movements without holding BTC in your wallet. That’s why a significant portion of the volume goes to paper Bitcoin. What if we experienced our last bull run in 2021 in an environment where paper Bitcoins exist? That’s a worrying detail.
In the first quarter of next year, the SEC will decide and the first Spot BTC ETF will enter our lives. Or they may decide to reject it. Then, an environment without interest rate cuts until September after the halving in April. If there is no significant improvement in inflation and the Fed cannot escape recession, investors may not see the good days they have been waiting for until 2025.