The first two months of 2023 saw a relatively bullish cryptocurrency market. However, the cryptocurrency market is currently exposed to FUD around the Silvergate crisis. Interestingly, the FUD around Silvergate Bank crisis is deeper than it appears, in that the prices failed to recover despite a stock market rally on Monday. Meanwhile, traders are gearing up for Jerome Powell’s hearing before the US Senate committee.
The hearing will cover The Semiannual Monetary Policy Report to the Congress, and will feature Federal Reserve Chairman Jerome Powell testifying about the state of the US economy and the central bank’s monetary policy outlook for the rest of the year. As with previous statements from Powell, the hearing is likely to arouse huge interest among traders with high chances of volatility.
On-chain data suggested that prior to the outburst of the Silvergate-related FUD, the majority of traders were long on crypto tokens. Despite this and the stock market rally from last week, there have been hardly any signs of recovery in crypto prices. The impact of Silvergate crisis is so high on the crypto market that the sentiment has now turned to neutral from an otherwise bullish environment. Interestingly, the S&P 500 Vs Bitcoin Price divergence is currently at its highest since the FTX collapse in November 2022.
Crypto traders continue (somewhat) patiently waiting for prices to pick up as equities have continued to mildly rise Monday. The correlation break between the two sectors is currently at its most prominent since the FTX collapse four months ago.
Hence, any encouraging signals from Powell during the hearing about signs of disinflation or economic recovery could likely spur a jump both in stock markets as well as the crypto prices. Additionally, traders will factor in any significant developments from the Grayscale Vs SEC lawsuit arguments.
Traders have been waiting for the resolution of the Grayscale Vs SEC lawsuit for some time now. The lawsuit was filed by the SEC against the investment firm Grayscale and their Bitcoin Trust, claiming that the Bitcoin Trust was not registered under the Securities Act of 1933. Grayscale had filed a motion to dismiss the lawsuit, citing that the Bitcoin Trust was not a security.
In the wake of the lawsuit, Bitcoin Trust shares were trading at a discount to the underlying asset. In a recent development, Grayscale has provided an update to their investors saying that they have engaged in productive discussions with the SEC and that the company is committed to finding a resolution to the matter.
As Bitcoin and other cryptocurrencies continue to mature, regulatory hurdles and legal challenges will continue to arise. However, the very fact that Grayscale has been able to engage in productive discussions with the SEC is a positive sign, indicating that regulators are willing to engage with cryptocurrency firms and work towards a mutually beneficial outcome.
Overall, there is a high level of anticipation among traders as they await Jerome Powell’s hearing before the US Senate committee. Traders are hoping for any positive signals from Powell regarding the state of the economy and disinflation, as well as any news regarding the Grayscale Vs SEC lawsuit. Any positive developments could result in a jump both in the stock markets and the cryptocurrency market. However, no one can predict the future, and the market will continue to be volatile. Nevertheless, some traders will choose to hold on until stability returns, while others prefer to trade in the volatile environment.
