In recent times, Bitcoin, after a period of considerable growth, has experienced a significant downturn, leading to a broader market decline. What factors are contributing to Bitcoin’s recent “plunge”? Here are some reasons:
1. Fed Vice Chair Hints at Continued Interest Rate Hikes
Officials from the U.S. Federal Reserve (Fed) have indicated the need for continued tightening of monetary policy to bring inflation back to the Fed’s 2% target. According to Fed Vice Chair Michelle Bowman, “I remain prepared to support further increases in the federal funds rate at upcoming meetings if incoming data show that the process of bringing inflation to 2 percent on a sustainable basis has slowed or is likely to be slower than we had expected.”
Inflation, measured by the Consumer Price Index, has decreased from around 9% last year to approximately 3.7% in recent assessments, partly due to the Fed’s decision to raise interest rates by 5.25 percentage points over the past 18 months.
2. Binance Faces a Collective Lawsuit
Although not entirely clear, this could also be a factor contributing to Bitcoin’s recent decline. Binance and its founder, CZ, are currently facing a collective lawsuit related to allegations of market manipulation, affecting the financial stability of FTX, a competing platform.
According to Bloomberg, on October 2nd, Nir Lahav, an investor from California, along with others, filed a lawsuit in the Northern California District Court. They allege that the Binance exchange engaged in unfair competition, attempted to monopolize the market, and undermined FTX, one of its rivals.
The plaintiffs highlight Zhao’s (CZ) Twitter posts in early November, just before FTX suffered a major setback. On November 6th, CZ publicly announced the decision to sell a large number of FTX’s FTT tokens. The plaintiffs estimate that Binance owns up to 5% of the total FTT tokens.
The day after, Zhao claimed on Twitter that Binance had signed a letter of commitment to buy FTX but withdrew from the agreement a day later.
The plaintiffs argue that this action was not only unsettling for the crypto community but also carried malicious intent. Investors assert that Binance had been selling FTT tokens prior to the tweet and only made the announcement to drive down the market price of FTT.
Additionally, Binance’s CEO mentioned that he did not want to “support those who lobby against other players in the industry behind their backs.” The plaintiffs interpret this as implicit criticism aimed at Sam Bankman-Fried, the founder of FTX, known for his frequent lobbying efforts in Washington.
In the lawsuit, the group of investors argues that CZ’s actions were part of a broader and malicious strategy to undermine FTX. Following CZ’s tweet, the price of FTT dropped from $23.15 to $3.14, contributing to FTX’s financial distress. This led to chaos and an irreparable situation within the exchange’s leadership.
The plaintiffs believe that these actions were purposeful, aimed at eliminating a competitive rival and consolidating Binance’s market position. The group of investors is currently gathering evidence of financial damages, legal costs, and expects potentially thousands to join their collective lawsuit.
In conclusion, Bitcoin’s recent decline is influenced by multiple factors, including the Fed’s interest rate decisions and legal issues surrounding Binance. The cryptocurrency market remains sensitive to external events and regulatory developments, making it crucial for investors to stay informed and vigilant.
