Why is the crypto market down today?

The crypto market is lower today as market volatility increases ahead of the Federal Open Market Committee (FOMC) meeting on February 1 and a series of negative news weighs on Bitcoin, Ether and altcoin prices.

After jumping to new highs for 2023Bitcoin (BTC) and ether (ETH) retraced a portion of its recent gains. The main catalyst to the downside seems to be investor apprehension about the upcoming FOMC interest rate decision and we are also seeing similar pullbacks across the lower stock market.

Following the January 18 announcement that the United States Department of Justice imposed enforcement action against Bitzlato and increased pressure on certain players in the crypto sector, Binance began to block certain user accounts.

After benefiting initially Following a CPI printout that showed inflation slowing beyond expectations in December 2022, cryptocurrency and stock prices began to cool as retail data Lost expectations and decreased earnings.

US stocks fall ahead of FOMC

Cryptocurrency prices are still highly correlated with the Dow and S&P 500. As mentioned above, macro and cryptocurrency markets rallied after a better-than-expected CPI report, but lingering concerns about the health of cryptocurrencies The US and global economy rebounded after reported earnings showed a slowdown in corporate profits and consumer demand.

Most major banks still expect the US to experience a severe recession sometime in 2023.

According to the US bank datathere is more pain to come in the economy:

“Inflation, interest rates and earnings continue to be key to stock returns. Currently, inflation remains elevated, interest rates are rising, and the consensus earnings projections for 2023 are trending lower.”

US Crackdown with Unclear Regulations Impacts the Crypto Market

The cryptocurrency industry and regulators have a long history of not getting along due to various misconceptions or mistrust of the actual use case for digital assets.

On January 18, the US Department of Justice shut down the Russian exchange, Bitzlato and the initial announcement from the Department of Justice suggested that it would crack down on the cryptocurrency sector, but the message was not specific.

On January 30, the main centralized exchange (Exc.) by volume, Binance, decided to block some accounts due to the investigation on Bitzlato. While Binance Says “Funds Are Safe”, FinCEN Listed Binance Among the Best Bitcoin Counterparts from Bitzlato.

Without a framework for regulating the crypto sector, different countries and states have a host of conflicting policies on how cryptocurrencies are classified as assets and what precisely constitutes a legal payment system.

He lack of clarity This issue weighs on growth and innovation within the sector, with many analysts believing that cryptocurrency integration cannot happen until a more universally agreed set of laws is enacted.

While the Commodity Futures Trading Commission (CFTC) has called for clearer regulation, the rate of these changes is unknown. Biden Administration Released Cryptocurrency Roadmap Suggesting Preventing Pensions investment funds in high-risk investments.

Risk assets are heavily affected by investor sentiment, and this trend extends to Bitcoin and altcoins. To date, the threat of hostile cryptocurrency regulation or, worst case scenario, an outright ban continues to affect cryptocurrency prices on an almost monthly basis.

Regulators have recently turned their eyes to Gemini and Digital Currency Group over the Earn program which may further hinder the cryptocurrency market. the judgment of former CEO of FTXSam Bankman-Fried may also set a negative precedent against cryptocurrencies.

Taking Profits After Bitcoin's 44% Monthly Rally

Bitcoin and the crypto market have seen a strong start in 2023, as 64% of BTC investors achieve profitability as BTC the price reached $24,000 on January 29. Even struggling Bitcoin miners saw massive growth, with revenue increasing by 50% to $23 million signage a recovery for the beleaguered industry.

While Bitcoin is currently on track for best January performance since 2013, the volatility caused by the FOMC can change the results. With Bitcoin and Ether posting January gains of 40% and 32% respectively, some investors may start taking profits before the US tax season.

Related: LTC, AVAX, APT, and FTM Set to Rally as Bitcoin Price Targets $24K

The main investors in cryptocurrencies believe there are more sales on the horizon and Bitcoin Analysts Boost warnings of the continuation of the long-term downtrend. There's a CME futures gap below $20,000, and some traders expect the BTC price to pull back to this level at some point in the future.

In the meantime, investor risk appetite is likely to remain muted, and would-be crypto traders might consider waiting for signs of US inflation. A more transparent roadmap for crypto industry regulation would also help improve confidence across the industry.