After nearly a year of swirling rumours, the threat of US regulatory and criminal enforcement against Crypto’s biggest Exchange Binance was still hanging over the market. These rumours can now finally be put to bed. The US Justice Department fined Binance $4.3bn in penalties and forfeitures. The exchanges’ iconic CEO CZ pleaded guilty to money laundering charges and has stepped down from his position.
Markets quickly reacted to the news. After an initial drop, bulls took over the narrative. BTC recovered quickly. Not only could things have gone far worse, but a major uncertainty has finally been removed. Binance comes out of it with a newly ‘clean’ sheet and can continue to operate. In an industry as young and volatile as crypto, tail risks will always exist. Yet it is clear that most of the ‘skeletons in the closet’, be it FTX, Luna/Terra, 3AC, Celsius or now the case against Binance have been put to bed. In terms of market sentiment, not much stands between us and a 2024 Bull Market start.
In other market news, investors have been selling Dollars at the fastest rate in a year while they bet on Federal Reserve interest rate drops in the new year. As US inflation dropped to 3.2% in October, more than expected, and the economy continues to weaken, the bet is on that we have seen the last of interest rate rises. This is good news for risk-on assets such as crypto and any market participant with Dollar-denominated debt. As rates might drop, capital will go in search of higher return opportunities. So goes the theory.
This however is not set in stone. Ironically, while short-term inflation expectations are dropping, longer-term inflation expectations, as covered in our previous column, are on the rise as markets expect rate drops to reignite inflation. The Fed might well see this as a sign to hold off rate decreases longer than most anticipate. The decision on rates will be one of the main drivers that could reignite a bull market. If there has ever been a time to watch how the Federal Reserve interprets each and every upcoming data point, it is now.