What happened
Many cryptocurrencies struggled this week due to sectorwide concerns related to the large crypto exchange Binance. Highly anticipated economic data also failed to excite crypto investors.
The world's second-largest cryptocurrency, Ethereum (CRYPTO: ETH), traded roughly 8.7% lower for the week as of 1:56 p.m. ET Thursday, according to data from S&P Global Market Intelligence.
Meanwhile, the prices of the meme tokens Dogecoin (CRYPTO: DOGE) and Shiba Inu (CRYPTO: SHIB) had fallen 10.2% and 11.5%, respectively.
So what
Early in the week, the crypto market fell after Binance, the largest crypto exchange in the world, had to pause Bitcoin withdrawals twice over the weekend due to unprecedented congestion on its network. Many blockchain networks have also been facing intense congestion due to renewed interest in meme tokens. That interest has led to soaring transaction fees.
Image source: Getty Images.
One of those meme tokens in particular, Pepe (CRYPTO: PEPE), seems to be the center of attention. The ERC-20 token, meaning it trades on Ethereum's blockchain, has shot up since launching in April, driving transaction fees on Ethereum's network to a one-year high.
Investors also seem to be growing increasingly concerned about a harsher regulatory landscape in the U.S., recognizing that regulators have sharpened their fangs since the FTX debacle last year. At a conference this week, Binance's chief strategy officer, Patrick Hillmann, called the crypto regulatory landscape in the U.S. "very confusing." Hillmann added that Binance is currently seeking to be regulated in the United Kingdom.
Earlier this week, Coinbase CEO Brian Armstrong said the U.S. Securities and Exchange Commission has been on "kind of a lone crusade, if you will, with Gary Gensler, the chair there, and he has taken a more anti-crypto view for some reason." Exchanges like Binance and Coinbase are huge sources of liquidity for the industry, so if regulators really hamper their activity or capabilities, it could be a huge blow for the entire sector.
The other big event -- or lack of one, if you will -- was the release of new data from April that showed the continued slowing of inflation. The crypto market has rallied this year on the belief that the Federal Reserve is set to end its aggressive interest rate hiking campaign and maybe even cut rates later in the year.
This narrative is still in place, but the new data didn't necessarily solidify or bolster this argument, either.
John Williams, president of the Federal Reserve Bank of New York, said earlier this week that the Fed has not definitively declared that it is done raising rates. Williams added that the Fed could need to make additional rate hikes if the data does not show enough evidence of inflation slowing and approaching the Fed's 2% target.
What now
The selling action in crypto seems to be a mix of concerns regarding Binance, ongoing regulatory issues, and inflation data that simply wasn't convincing enough to get crypto moving.
Ultimately, I think macroeconomic factors are going to have the biggest influence on the crypto market this year. Crypto investors will also be keeping an eye on what regulators do, although they have so far been able to shake off a lot of regulatory concerns.
I still think Ethereum will be a good long-term investment because of its unique technological capabilities and enhanced network since the upgrade. I have no interest in Dogecoin or Shiba Inu, although they tend to move with the broader market.
