American Inflation Retreat Positive for Bitcoin
Expectation for Fed to slow rate hikes, but crypto market still faces its own risks.
January 13th, 2023 - After the release of the American inflation rate showing a decrease in December, the price of Bitcoin reached a high of $19k (+5% in 24 hours and +13% in 7 days), pulling other cryptocurrencies along with it. As the market digested the inflation numbers, it was noted that many components of the index actually experienced deflation in the last month of the year. Consequently, expectations that the Federal Reserve will reduce the rate of interest hikes from 50 basis points to 25 basis points in the February 1st meeting have increased, which may support the price of Bitcoin above $18k by the end of the month.
Meanwhile, specific risks in the crypto market remain present. The Securities and Exchange Commission (SEC), the regulator of the American financial market, has opened a case of unregistered securities offering against the brokerage firm Gemini, run by the Winklevoss brothers, and the crypto lending company Genesis, run by Barry Silbert's DCG group. The case refers to the earnings program called "Earn" that Gemini offered to its customers through the Genesis platform. In parallel, Gemini and Genesis/DCG are in litigation due to a potential default of $900 million by the Silbert group.
The SEC has been trying to classify various cryptocurrencies as securities for some time, as in the case of Ripple (XRP). We believe that the SEC and other regulators will be closely monitoring this year for opportunities to strengthen this thesis.
Additionally, the DCG group is reportedly seeking buyers for part of its assets, a total of $500 million, which would be used to pay off part of the $3 billion in debt speculated by the market, including the $900 million owed to Gemini's customers.
In our opinion, a sharp deterioration of the DCG group's situation may be a factor that holds back the crypto market rally this month. However, some analysts believe that this event has already been priced in.
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