Cryptos face reality again; Bitcoin falls to $23,500

Profit-taking in the cryptocurrency market. Bitcoin (BTC) drops nearly 4% to $23,600 after surpassing August highs on Thursday. Ethereum (ETH), meanwhile, falls 1.6% to $1,650.

If we had to sum up this week with one word, it would be "volatility". When everything seemed to indicate that cryptos were doomed to fall, with Bitcoin destined to test $20,000, there was an unexpected change. Yesterday, on Thursday, the market's largest crypto soared to above $25,000 for the first time since August. This rebound was understood by many as renewed optimism for the market, despite the recent regulatory crackdown by the Securities and Exchange Commission (SEC) and other negative headlines in the space. However, cryptocurrencies seem to have returned to stock market reality.

"The equity marathon that kept going on for questionable reasons since Tuesday ended in tears yesterday, with the arrival of a new set of economic data that crushed the optimistic rhetoric of soft landing," stated Ipek Ozkardeskaya, senior analyst at Swissquote Bank. The poor producer price data, which rose much more than expected, affected investors' good mood, but it was the "disastrous" manufacturing index from the Philadelphia Fed that put the final nail in the coffin.

The benchmark fell to -24.3 points from -8.9 previously when consensus estimated a slight improvement to -7.4 points. "So that crushed the idea that the economy is strong, without however fueling the Federal Reserve (Fed) cut expectations, as the slowdown in inflation needs to be addressed for some more time," Ozkardeskaya explained.

Meanwhile, Cleveland Fed President Loretta Mester and St. Louis Fed President James Bullard both showed a penchant for a 50 basis point rate hike. "Happily, for the equity bulls, both Mester and Bullard don’t vote this year. But their non-voting status didn’t make their comments sound any less scary," the Swissquote Bank expert remarked.

"Next week’s Fed minutes could shed some further light on that thought process, but her comments also raise the question that even if there wasn’t a compelling case for a 50bps move back then amongst other members, surely the data since then suggests that there might be a stronger case for a 50bps move in March," noted Michael Hewson, chief markets analyst at CMC Markets UK.

In the cryptocurrency sector, the week's major news stories don't leave much room for optimism either. On the one hand, the court overseeing the criminal case against Sam Bankman-Fried could modify the terms or even revoke the FTX founder's bail. Judge Lewis Kaplan believes that the violation of the conditions of his probation are sufficient grounds to find that there is "probable cause to believe that he (Bankman-Fried) has committed or attempted to commit a federal felony while on release, namely witness tampering."

On the other hand, reports that Binance may pay a fine to settle possible legal violations committed in recent years have not been well received either. Even less so considering the recent regulatory action on the Binance USD (BUSD) token, about which some experts believe has more to do with the money laundering investigation hovering over the exchange than the SEC's stance on stablecoins. On the other hand, the Commission has sued Do Kwon, founder of Terraform Labs, for defrauding investors in the collapse of Terra.

In other market news, there have been sharp falls in almost all the major altcoins. Only polygon (MATIC) and Polkadot (DOT) accumulated a positive balance in the last 24 hours.