Cryptocurrencies face renewed pressure after the US failed to advance a key regulatory Bill, bruising industry sentiment just ahead of a potential interest-rate hike from the Federal Reserve.
Bitcoin, which fell 4 per cent in US trading, stabilised at around US$75,900 as at 8am in London. The broader cryptocurrency market was also weaker after steep declines in the US.
Investors had been looking to the Clarity Act – a crypto market structure Bill that was under consideration for more than a year – to help the market break out of an 11-month malaise, even as the Bill was seen as having a low chance of progressing in the Senate this week amid political wrangling.
Now inflation fears and soaring US bond yields are expected to push Fed chairman Kevin Warsh to raise rates on Sept 16, which could further damp demand for risk assets like Bitcoin.
The failure to progress Clarity “adds additional headwinds in the short term for a move up in Bitcoin”, said Pratik Kala, a portfolio manager at digital-asset hedge fund Apollo Crypto. “Until investors gain more certainty on the path of rates globally, risk assets would remain under pressure,” he added.
Bitcoin bets
More than US$540 million (S$687 million) in bullish bets on cryptocurrencies were unwound in the last 24 hours, according to Coinglass data.
Institutional demand weakened, as well, with US-listed spot Bitcoin exchange-traded funds seeing more than US$450 million in net outflows on Sept 15, the largest single day of withdrawals since June.
However, positioning in Bitcoin showed some resilience. There are more bets on the original cryptocurrency to rise than to fall, according to data on Deribit. Roughly US$1.7 billion in calls were held at the US$80,000 level across all maturities, the data showed.
Industry executives were quick to express frustration over the failed Senate vote on Sept 15, as it was meant to lend legitimacy to crypto as it further integrated into Wall Street.
In posts on social media platform X, Ripple Labs chief executive officer Brad Garlinghouse called for a post-mortem looking at why the Bill failed, while Coinbase CEO Brian Armstrong said the industry could no longer wait on Congress.
Both pointed to the Securities and Exchange Commission and the Commodity Futures Trading Commission as being able to offer a clear regulatory framework in the absence of legislation. However, agency rules could prove easier for a future administration to change.
“This points to the larger challenge ahead,” said Samson Leo, chief legal officer at the Singapore-based stablecoin issuer StraitsX. “The longer major markets operate without clear and compatible frameworks, the harder it becomes to address fragmentation.”
But the immediate focus is now on the Fed, with markets pricing a better than 90 per cent chance of a 25 basis-point hike, swops data showed.
“Market turmoil is to be expected across all asset classes if Warsh fails to hike rates,” said Caroline Mauron, co-founder of Orbit Markets. She added that inflation concerns could revive the debasement trade, which is positive for Bitcoin, but “bond yields mayhem and general market volatility will probably take it down first before it goes up”. BLOOMBERG
