Just prior to the weekend, news broke that the SEC is considering legal action against Coinbase. This development, compounded with the previous market downturn experienced when BTC went live as legal tender in El Salvador, primed markets for a subdued few days. The following are a couple sources of fear plaguing markets over this time, potentially fueling a continued price suppression.
Stablecoins have, and will continue to play an important role within the digital asset sector. While many view them as a safe-haven from market volatility, there are those in power which are not convinced. Leading in to the weekend, this was highlighted when reports surfaced of recent meetings within the United States Treasury Department surrounding stablecoins. These meetings are believed to stem around what oversight is required to ensure stablecoins remain solvent, and to keep the market ‘in-check’.
This uncertainty surrounding stablecoins goes well beyond the treasury however, with the SEC also playing a role. When Coinbase CEO Brian Armstrong announced last week that the SEC was considering legal action against the company, he indicated that this stemmed from its soon-to-launch ‘LEND’ feature. This would be a service which allowed for users to lend out their USDC holdings in an effort to help market liquidity. In return lenders would be compensated with a small yield on their holdings. Essentially the service would act similar to others currently available on the market such as BlockFi, Ledn, and more. While many view such a product as no different than a savings account which provides a modest interest rate, the SEC has taken the stance that by guaranteeing a return, USDC lent out becomes a security – requiring full adherence to existing securities regulations.
This stance simply ramped up the growing attention being placed upon stablecoins by the powers-that-be. With these assets playing such a pivotal role in the overall digital asset market, any poorly conceived regulation has the potential to stall any upwards trajectory being seen.
Stimulus packages issued by governments around the world have unsurprisingly led to inflation levels running rampant – with Canada having recently seen its highest levels in more than a decade. The United States is no more immune than its neighbour to the north however, and this may once again be scaring investors.
In an attempt to understand market activity, CoinDesk notes that the recent downturn may be in part due to upcoming data pertaining to inflation which is expected to be released this week. It notes that the last time this data was released was in May – leading to an epic market crash. Multiple analysts have noted 5% inflation as being the balance point in which markets could tip bearish/bullish. Anything above that point, and it is expected that stimulus efforts will wane, while anything under will ensure the status quo remains.
While there are no guarantees that such a crash will happen again, many investors may be removing themselves from the market preemptively, in an attempt to shelter themselves from any significant downward swing.
Although there was a slight bounce mid-weekend from earlier lows, nothing substantial was able to come from this movement. Entering the new week, BTC resides at roughly the same level it did entering the weekend.
Moving forward, positive news is most definitely needed to ensure this continued decline does not persist. Perhaps another buy-in by MicroStrategy?