Crypto Markets Turned Bipolar After Latest FOMC Meeting

Last week, the digital asset market experienced an unexpected surge, with Bitcoin (BTC) taking the lead with an impressive 12% daily gain on Tuesday. This was the first time since September 2022 that BTC has surged in double digits in one day.

Even stranger, last week was an objectively bearish week, with the January CPI release coming in slightly gloomier than analysts had expected, sending risky assets lower across the board. However, to the surprise of most people, BTC quickly recovered.

This is interesting behavior since it shows a possible decoupling of crypto financial conditions from monetary policy, and suggests some bipolarity in the current market.

h2 Crypto Lens: Layer 2 solutions and virtual machines/h2

The STX token and the Filecoin token FIL have seen a surge in value as the launch of the Ordinals protocol and the launch of the Filecoin Virtual Machine (FVM) caught the attention of investors.

The Ordinals protocol has introduced a new narrative of non-fungible tokens (NFTs) and smart contracts on the Bitcoin blockchain, while the FVM will allow developers to design decentralized applications on the Filecoin network.

This news has fueled interest in these two tokens as investors seek to capitalize on the new opportunities they offer.

h2 branch shaker/h2

• Hong Kong proposes rules for crypto trading platforms

On Monday, Hong Kong proposed rules that would allow retail investors to trade certain “large-cap tokens” on licensed exchanges, in stark contrast to mainland China’s crypto-related transaction ban. This more relaxed regulatory environment for cryptocurrencies will likely create an opportunity for China-based exiled Web3 companies to return closer to home. And as the US government continues to implement regulations for the crypto industry, Hong Kong could become a new hub for the virtual assets industry.

• Many existing stablecoins will fail upcoming global standards: FSB

Stablecoins have come under intense scrutiny over the past month, with the SEC issuing a Wells Notice to Paxos, the issuer of the BUSD stablecoin. In more recent developments, the Financial Stability Board (FSB) — through its chair Klaas Knot — said most of the existing stablecoins are unlikely to meet upcoming global standards. These recommendations will focus on strengthening governance frameworks, redemption rights, and stabilization mechanisms for stablecoins.

• Bank of Japan tests digital yen in April

The Bank of Japan (BOJ) has announced that it will launch a pilot program in April to explore the possibility of issuing a digital currency, the “digital yen.” This is more than two years since the BOJ first began investigating this space with its proof-of-concept Central Bank Digital Currencies (CBDC) experiment in October 2020. The pilot program will be used to develop a test system consisting of a central system, intermediate network systems, intermediate systems and endpoint devices, all connected in one fabric.

• SEC takes action against Do Kwon and Terraform Labs

Last week, the US Securities and Exchange Commission (SEC) filed a lawsuit against Terraform Labs, a Singapore-based crypto company, and its CEO, Do Kwon, in the US District Court for the Southern District of New York. The SEC claimed the defendants committed billions of dollars in securities fraud. They were accused of violating the registration and anti-fraud provisions of the Securities Act and the Exchange Act. The indictments come almost a year after the sinking of Terra Luna, which was a $60 billion ecosystem at the time of its collapse.

Written by:
Ulrich Lykke