What happened
Many cryptocurrencies have slid this morning as investors await new inflation data tomorrow and grow increasingly concerned about harsher crypto regulation.
Since late afternoon yesterday, the price of the world's second-largest cryptocurrency, Ethereum (ETH 0.15%), is trading roughly 3.8% lower as of 10:21 a.m. ET. The price of the meme tokens Dogecoin (DOGE 0.61%) and Shiba Inu (SHIB 1.36%) are trading 3.3% and 6% lower, respectively.
So what
Tomorrow, the U.S. Bureau of Labor Statistics (BLS) will unveil the latest data for the Consumer Price Index (CPI), which tracks the prices on a market basket of consumer goods and services and is a key means by which investors gauge inflation.
Image source: Getty Images.
The market still seems to largely think that the Federal Reserve is almost done with its interest rate–hiking campaign and will cut rates toward the end of the year. But if the data doesn't continue to support easing inflation, the Fed may raise rates more than expected or keep them high for longer.
That would be bad for cryptocurrencies, which got crushed in 2022 due to soaring interest rates, which make safer assets yield more and make riskier assets like crypto less attractive.
In other news, further regulatory action continued to rattle crypto markets this morning. The New York Department of Financial Services (NYDFS) told the crypto company Paxos to stop issuing Binance's U.S. dollar–pegged stablecoin Binance USD (BUSD). NYDFS said the order is a "result of several unresolved issues related to Paxos' oversight of its relationship with Binance." This is the first time regulators have really clamped down on traditional stablecoins, which are pegged one-to-one to a fiat currency or commodity.
"I think these stablecoin regs have the potential to be quite a big deal for the space structurally and could have a real impact on the market," Hal Press, the founder of the digital asset hedge fund North Rock Digital, wrote on Twitter.
Stablecoins have become a big part of the crypto world because they help investors convert cash to crypto very easily and are more reliable than other digital assets. Essentially, they've helped serve as an on- and off-ramp for investors looking to trade crypto quickly.
The enforcement by NYDFS comes only a few days after the Securities and Exchange Commission last week fined the large crypto exchange Kraken $30 million and told the company to stop operating its staking-as-a-service program. Many experts saw the move as part of a broader campaign by the SEC against staking, which many blockchain networks now use as their governing consensus mechanism.
Now what
Following the FTX debacle, the market expected to see more regulation, but so far that regulation has been restrictive and likely hasn't had the kind of reassuring effect that investors were hoping for.
Many investors are concerned that regulators are focusing on parts of the crypto ecosystem that the industry needs to operate. Tomorrow's news could also affect crypto prices in a meaningful way, depending on how CPI data for January comes in.
At this point, I am still bullish on Ethereum, a network that has gained a ton of traction in recent years and has lots of real-world use cases. I am not interested in Dogecoin or Shiba Inu.
