What happened
Cryptocurrencies struggled again today as Bitcoin breached a key support level and investors continued to digest the pause of Bitcoin (CRYPTO: BTC) withdrawals on Binance as well as macroeconomic and regulatory concerns.
Since late afternoon yesterday, the price of Litecoin (CRYPTO: LTC) is trading 11.3% lower as of 11:34 a.m. ET today. Meanwhile, the price of the meme token Shiba Inu (CRYPTO: SHIB) is trading 10.7% lower and the price of Polygon (CRYPTO: MATIC) is down 11.5%.
So what
On Sunday, Binance, the largest crypto exchange in the world, twice paused Bitcoin withdrawals due to heavy congestion on the exchange's network. The renewed popularity of meme tokens has been leading to huge increases in transaction prices on blockchain networks, which has affected fees on Binance as well. These concerns pushed the price of Bitcoin, which affects the entire crypto market, below a key threshold.
Image source: Getty Images.
"Bitcoin fell decisively below its 50-day moving average around $28,600 [on Monday], which we were referencing as initial/minor support ... a breakdown is likely to confirm and give way to deeper pullback, with next/major support near $25,200," said Katie Stockton of Fairlead Strategies.
On the regulatory front, the crypto exchange Bittrex recently filed for bankruptcy, just weeks after the Securities and Exchange Commission alleged that Bittrex had been selling unregistered securities.
In the company's bankruptcy filing, co-chief restructuring officer Evan Hengel stated that Bittrex "faced an untenable regulatory and economic environment" with "the lack of regulatory clarity in the U.S. [that] created a substantial negative economic impact on the digital asset industry and resulted in overlapping regulatory burdens and soaring regulatory costs."
I also think some of the macroeconomic factors that have helped Bitcoin and the rest of the crypto market rally this year are starting to creep back into the picture. Much of the market thinks the Federal Reserve is set to pause its interest rate hiking campaign and then eventually cut rates later this year, which would be good for riskier assets like cryptocurrencies.
But some now believe that while the Fed may pause, the agency also may hold rates higher for longer. Strategists at Barclays and now Goldman Sachs believe the market may be getting ahead of itself.
Currently, traders are betting that the Fed will leave interest rates unchanged at their June and July meetings. Strategists at Goldman noted, however, that when the Fed has kept rates steady in two consecutive meetings after a series of rate hikes, the most likely outcome over the following six months "has been an on-hold Fed."
Now what
It has been a great year for crypto so far, but there is a lot going on out there, including liquidity concerns, a much harsher regulatory environment, and an uncertain outlook. I still think it's premature to say that the Fed will cut rates this year. It could happen; I just don't think investors should bank on it.
While the Polygon and Litecoin networks do have some interesting technical capabilities that help them stand out, I think the best crypto investments are still going to be Bitcoin and Ethereum. Most of the altcoins are going to be more volatile and therefore require more risk tolerance. I have no interest in Shiba Inu, although so far it has done well when the broader crypto market has.
