Don't Believe The Hype: The Real Reason Why Cryptos Have Been Falling

Don’t Believe The Hype: The Real Reason Why Cryptos Have Been Falling.

28 March 2023

Bitcoin and other cryptocurrencies slumped on Tuesday as investors have become more cautious following reports that Binance, the world’s largest crypto exchange, is being sued by US regulators. Yet, this is not the main explanation for the reductions.

Bitcoin dropped 3% in the previous 24 hours to $27,000, its lowest consistent price in two weeks, when its recent rise gathered up the pace and brought prices to approximately $28,500, the highest level since last June.

“The decline was triggered by the CFTC’s surprise lawsuit against Binance,” said Alex Kuptsikevich, an analyst at broker FxPro. “Investors should ask themselves again: Are my funds safe? If banks are a risk, crypto exchanges are an even more significant risk.”

Indeed, on Tuesday, the Commodities Futures Trading Commission sued Binance and its co-founder and CEO, Changpeng Zhao, citing violations of laws requiring futures and other derivatives to be traded on licensed platforms.

Yet, this may not be the sole reason driving down prices in the short run. MicroStrategy (MSTR), a software business chaired by high-profile Bitcoin bull Michael Saylor and owner of considerable sums of digital assets, said on Monday that it had bought another tranche of Bitcoin – 6,455 coins for around $150 million.

“An adverse market reaction following MicroStrategy purchase announcements is typical, with Bitcoin averaging -2.2% on MicroStrategy announcement days. The average 7-day return is more balanced at -0.2%,” analysts at digital asset market research group K33 Research wrote in a note.

Because higher interest rates dampen demand for risk-sensitive assets, Bitcoin remains sensitive to macroeconomic forces and movements in the Dow Jones Industrial Average and S&P 500. While traders will likely have to wait until Friday for the next major macro catalyst, economic data covering trade, inventories, and consumer confidence will be released on Tuesday, along with public remarks from a Federal Reserve official.

Outside Bitcoin, the second-largest cryptocurrency, Ether, fell 1.5% to $1,730. BNB, the Binance exchange’s native token, fell by 5%. Lesser cryptos or altcoins also fell, with Cardano falling 1% and Polygon falling 2.5%. Memecoins were also weaker, with Dogecoin and Shiba Inu both losing 1.5% of their value.

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