More Fed action may be coming
A major rally has dominated the crypto market following the recent US CPI report. Inflation is easing again, but does this mean the Fed will cut interest rates?
The Bureau of Labor Statistics reported Monday that the consumer price index (CPI), an annual rate of inflation, hit 6% in February, the lowest rate since September 2021.
The CP index measures inflation, and follows the average price change of goods and services over time. Inflation in February was lower than in January. In January, CPI data recorded a 6.4% annual increase, driven by shelter costs.
The data for both months matched economists’ predictions. In response to the news, Bitcoin, the largest cryptocurrency by market capitalization, has seen an unprecedented performance.
TradingView said Bitcoin’s price passed $26,000 shortly after the release of the CPI data. The flagship crypto had nearly breached the $27,000 mark before falling to around $24,000 in later trading.
The market can exceed reality
Positive market sentiment has led to a ripple effect across other altcoins. Ethereum has gained 4.3% in the last 24 hours and is currently testing the $1,800 resistance level. Top 10 tokens have increased from 1% to 6%.
Fed Chairman Jerome Powell repeatedly warned that the central bank would take more aggressive steps to curb inflation. This sparked rumors that the Fed could raise interest rates by 50 basis points in the coming week.
However, the recent unrest in the banking sector has led to speculation that the central bank may indicate a pause in interest rate increases.
After the liquidity crisis of Silvergate Bank, Silicon Valley Bank (SVB) and Signature Bank closed their doors. Regulatory interventions came into play to prevent potential systemic risks.
During the SVB contagion, stablecoins have been heavily affected. Circle, the issuer of stablecoin USDC, confirmed that $3.3 billion is stuck in Silicon Valley Bank. This revelation caused the value of USDC to be removed below $1.
Stablecoins Look Iffy
Other stablecoin projects were also under attack. MakerDAO’s stablecoin DAI and Binance USD BUSD were also decoupled. Investors panicked and sold their stablecoins, causing their value to drop.
Many have speculated that regulators’ action against Signature Bank is motivated by a desire to undermine the cryptocurrency industry. These banks were known to support cryptocurrency, and provide critical on-board and off-board services for many industrial firms.
Signature Bank was originally known for real estate lending. The bank started shifting its focus to the crypto sector in recent years.
According to the record, 27% of Signature Bank’s deposits came from digital assets in early 2022. The market became volatile after the FTX stock market crash, which led to billions in withdrawals from the bank.
The US Treasury Department approved plans to dissolve both Signature Bank and Silicon Valley Bank to protect depositors and prevent systemic risk.
The US Federal Reserve (Fed) also established the Bank Term Funding Program (BTFP) to help cover financial institutions from market turmoil caused by the SVB collapse.
The US Treasury Department has set aside up to $25 billion to cover any losses for the BTFP program. Regulators stated that Silicon Valley Bank depositors could access all their funds starting Monday, March 13.
Big banks buy assets
Meanwhile, HSBC Holdings has reportedly bought the UK operations of Silicon Valley Bank in a £1 deal. As stated by HSBC Group CEO Noel Quinn, all deposits are secured by the agreement.
As a result of these recent developments, there are concerns that the crypto space will be left with a significant gap in financial services infrastructure.
The failures of Silicon Valley Bank and Signature Bank in recent days will undoubtedly lead to a more cautious approach to monetary policy, potentially tightening crypto regulations.
Inflation is lower, but it does not signal lower interest rates. Experts believe a rate hike at the FOMC meeting on March 22 is coming, and this could wake the markets up to reality.
