Reviewing Last Week’s Market Drop

Ronnie_Chan
ZMQuant
Published in
2 min readMay 7, 2024

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After a wild ride last week with cryptocurrency prices, things seem to have stabilized, bouncing back to a more reasonable level after Bitcoin plunged below $60000, dragging down other cryptocurrencies like ETH.

Market concerns over the Federal Reserve’s hawkish tone considering hot inflation data, along with uncertainty from the SEC, were the main reasons behind this drop. However, looking at things now, the outcomes are better than anticipated.

Potential Rate Cut in September

Firstly, last week, the Fed decided to maintain the current target interest range and announced plans to gradually reduce monthly Treasury security sales from $60 billion to $25 billion starting in June, aligning with market expectations.

Surprisingly, Powell struck a more dovish tone in his press conference, ruling out the possibility of another rate hike. Additionally, April saw weaker-than-expected non-farm payrolls an unemployment rate of 3.9%, slightly higher than the predicted 3.8%, indicating a softening economy. With these scenarios, the market now anticipates that the first rate cut will happen in September.

SEC’s Year-Long Probe on ETH

Another significant factor affecting the crypto market last week was the SEC’s unclear stance on Ethereum’s classification. It seems the situation is more complex, as recent information revealed that the SEC’s investigation into whether Ethereum should be classified as an unregistered security was not started recently; it has been ongoing for over a year. This dampened expectations for the approval of an ETH Spot ETF in May.

However, critics argue that, according to disclosed filings, the investigation into Ethereum was signed off on a formal order on March 28, 2023. Just a few months later, in October, the SEC expedited the approval process for trading ETH Futures ETFs on commodity exchanges.

Nevertheless, last week, Eleanor Terrett, a journalist from Fox Business, reported that institutions had received “positive dialogue” from the SEC, indicating confidence in their prospective applicants for leveraged ETH futures ETFs approval.

If the SEC truly considers ETH as security, there would be no rationale for them to endorse ETH futures ETFs. Given these circumstances, the likelihood of approval for a second major crypto asset’s spot ETF appears promising.

Taking a view of cryptocurrency prices in a longer time frame, the recent drop appears to be a minor correction driven by market sentiment surrounding recent news. However, the overall outlook for the crypto sector remains positive.

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