The crypto markets appear vulnerable following the Paxos crackdown

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  • Last week, crypto markets retraced as regulators targeted the industry in what appears to be a coordinated crackdown, with BTC and ETH down single digit % respectively.
  • We are currently pricing a 5.2% terminal rate in the rates market, which will be followed by a 30bp cut by December 23. This is a significant improvement from the 4.9% terminal and 50bp cut we were pricing just two weeks ago.
  • BUSD, a dollar-pegged stablecoin with the Binance brand that is widely used on the exchange and throughout its DeFi ecosystem, will no longer be issued by Paxos.
  • The US SEC’s goal now seems to be to limit the size of the industry so that mistakes like FTX don’t have long-term effects.
  • Due to competition and a prolonged bear market that reduced trade volume, LocalBitcoins shut down after ten years of operation.
  • The CPI is predicted by economists to rise by 0.4% in January, translating into a 6.2% annual growth rate (i.e., prices across all sectors increased 6.2% from the previous year).

Bitcoin (BTC) and overall crypto markets experienced a significant increase in value in January, but it appears that both cryptocurrencies are taking a break in February. Both of them have failed to post meaningful weekly gains for the past three weeks as BTC is still consolidating. Bitcoin’s price continued to decline, falling below the $22,200 support level and even crossing over the $22,000 support area. Prior to entering a period of consolidation, it traded in the direction of the $21,500 support level, making a low close to $21,300.

Trading view

The correlation between bitcoin and gold, a traditional safe-haven asset, has reached a three-month high as new capital in both markets slows. Both assets saw a rise in January before slowing down in February, which saw rising interest rate expectations as a result of a strong US jobs report. Investors in bitcoin have cheered a strong rally in January that was largely caused by shifting tax losses and a significant short squeeze. Bitcoin price reacts to inflation numbers and Fed rate increases while also responding to unfavourable sentiment brought on by regulation and other factors. An increased BTC downturn would put more pressure on the mining sector and struggling businesses like Silvergate Capital (SI), which may be the next to fail, and even put its troubled conglomerate, Digital Currency Group, in jeopardy.

Zero-Knowledge(ZK) Proof Narrative:

Binance, a cryptocurrency exchange, announced a significant improvement to its proof-of-reserves verification process on February 10. Binance announced the addition of zk-SNARKs, a cutting-edge technology that will allow it to verify its reserves in a more secure and transparent manner. The security and openness of the verification process are anticipated to be greatly enhanced by the zk-SNARKs upgrade. Another new trend in cryptocurrency is currently emerging, similar to the AI trend. “Zero Knowledge Proof Coins” (ZK) is their name. in the days to come. The tokens AI and ZK both had incredible runs during the week.

The price of DUSK increased by more than 50% to set new highs for 2023 above $0.21. The LRC price increased by more than 20%, and the trading volume increased by more than 100%, pushing the market cap above $500 million.

Alt coin prices

By putting a lot of effort into improving ZK-rollups, Polygon has started its own presence in the area. Additionally, the platform updated its rollups to be compatible with EVMs, enhancing the Ethereum chain’s scalability and security. The ZK rollups have been adopted by numerous chains, and as a result, the volume and value of each chain’s native tokens have recently increased.

Ethereum Price Analysis:

Ethereum (ETH-USD), despite its recent price drop, continues to be at the forefront of decentralised finance, smart contracts, NFTs, and other rapidly expanding trends that should support long-term price growth. The ability of investors to sell staked Ethereum could be a future catalyst, and the Zhejiang Testnet’s success in enabling test withdrawals suggests that this upgrade is soon to come.

Trading view

Ethereum’s token price’s attempt to recover fell apart at $1,672. This shows that bears were very active at that level and wouldn’t let a breakout to $1,766. This makes it more likely that the price will break below $1,580 and reach the support level at $1,462. If the price bounces back from this support, the bulls will try to push the ETH/USD pair above $1,580 and $1,620.

Concluding Thoughts:

The United States Securities and Exchange Commission (SEC) issued a Notice to Paxos, alleging that the dollar-pegged Binance USD BUSD stablecoin is an unregistered security, prompting bitcoin and altcoins to fall further. Separately, the New York Department of Financial Services (NYDFS) has ordered Paxos to halt the issuance of BUSD. Following the regulator’s actions against Kraken last week and now Paxos, crypto investors may be nervous. Bitcoin, on the other hand, has formed a golden cross (MA) on the daily chart and a death cross on the weekly time frame. This implies that the medium-term trend is still negative, but the short-term trend may be signalling a change.

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