This Week’s Top Headlines

i) The US Securities and Exchange Commission (SEC) clamps down on crypto regulation. Digital asset exchange Kraken agrees to pay a $30 million fine and shut down its staking services to settle charges.

ii) The bearish trend is starting to take hold in the market. Bitcoin deepens its retracement from the previous week and tumbles below $22,000.

iii) Global markets brace for the upcoming US CPI data, scheduled to be released on Valentine’s Day (Feb 14).

iv) Bank Negara Malaysia (BNM) governor quells recession fears and assures that Malaysia will not go through a downturn, as the country’s latest GDP hits a 22-year high of 8.7%.

Scroll down to read the details.

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The bears have arrived.

Bitcoin has retreated from its 8-month high of $24,200.

At the time of writing, it is being traded at $21,654, having lost both crucial support levels of $23,000 and $22,000 on Thursday and Friday, respectively.

The Relative Strength Index (RSI) mirrored this trend and is now approaching the oversold territory as sellers are starting to dominate the market. The $20,000 level serves as the final line of defense for Bitcoin - a decline below this point would trigger a downward spiral towards its November low of $15,500.

January has been outstanding for Bitcoin, having surged by over 39%, the highest monthly return since 2013. In previous issues, I had cautioned against the likelihood of a correction, as it is unreasonable to expect a rally to persist forever.

February sees Bitcoin starting off on a negative note, but historical data suggests that we could still see Bitcoin closing the end of the month in green, as 9 out of the 13 years since 2011 have yielded a positive return in February.

Party Pooper: The US SEC halts market rally, charges Kraken for $30 million.

The United States Securities and Exchange Commission (SEC) is a federal government agency established following the Wall Street Crash of 1929. Its main function is to enforce regulations aimed at preventing market manipulation.

The SEC has always been at war against cryptocurrencies.

With the excuse of “protecting investor safety” and “maintaining fair and orderly markets”, the enforcement agency has throughout the years charged multiple crypto giants, including Ripple Labs (XRP) and BlockFi.

However, despite their stated aim of protecting investors, the SEC has been unable to prevent various black swan events from occurring in the cryptocurrency market. This raises questions about the effectiveness of the agency's actions, especially in light of the recent collapse of companies such as Terra (LUNA), FTX, Celsius, and many others in the Web3 space.

In its latest actions to “help” investors, the SEC has charged Kraken, a US-based digital asset exchange founded in 2011, for the unlawful offering of a service which allowed investors to earn up to 20% per year by “staking” their crypto.

The justifications were that the service was “untethered to any economic realities” and “provided them (investors) zero insight into, among other things, its financial condition and whether it even had the means of paying the marketed returns in the first place.”

On Thursday, Kraken agreed to pay a $30 million fine and immediately cease its crypto-staking service as part of a settlement with the SEC.

This settlement received a negative reaction from the crypto community, with influencers characterizing the SEC's actions as “stifling innovation in the crypto space.” The announcement of the lawsuit caused a significant drop in the price of Bitcoin, which fell 6.2% from $23,000 to $21,600.

But hey, Jim Cramer warned us about this just a day before the crash. Maybe we should’ve heeded his “advice”.

The upcoming US CPI data will be the next market mover.

In recent months, inflation in the United States has seen a steady decline, with December’s figure hitting expectations at 6.5%.

The decline in inflation is the primary factor behind the Federal Reserve's recent decision to reduce its rate hikes, from 75 basis points down to 50, and then to 25 in its most recent meeting.

These two factors were the key drivers behind the bullish performance of equities and Bitcoin in January.

The next release of the US Consumer Price Index (CPI) data, scheduled for Feb 14, is expected to greatly influence the short-term direction of both equities and Bitcoin.

The market widely believes that inflation will continue its decline, as investors anticipate a decrease in the overall CPI from 6.5% the previous month to 6.2%.

Excluding volatile items such as food and fuel, core CPI is expected to slow from 5.7% to 5.5%.

Should the latest release fail to meet expectations, the stock market is likely to experience a sharp decline and Bitcoin may revisit the $20,000 mark.

BNM Governor: Malaysia unlikely to enter a recession this year.

In a press conference on Friday (Feb 10), BNM Governor Tan Sri Nor Shamsiah Mohd Yunus said Malaysia is unlikely to enter a recession this year, as robust domestic demand and spending continue to fuel growth.

This is in light of Malaysia’s GDP reaching a 22-year high of 8.7% in 2022, compared to 3.1% in 2021, marking the highest growth among neighboring countries.

On a quarterly basis, Malaysia expanded by 7% in Q4 of 2022 after a record double-digit growth of 14.2% during the previous quarter.

The recent numbers are encouraging, but there are some concerns regarding the contribution of GDP growth to inflation. Increased spending often leads to higher prices, and this was a question of interest that I posed to Hann Liew, the CEO of RinggitPlus.

Hann expressed his belief that, in the absence of market disruptions (such as the Russia-Ukraine War), Malaysia's strong GDP growth is unlikely to have any impact on local inflation. He pointed out that food and necessary items were the main contributors to the overall increase in inflation. However, with moderating prices, it is expected that our country's Consumer Price Index (CPI) numbers will continue to decline, provided that subsidies remain in place.

That’s all for this week’s newsletter!

Disclaimer: I am not a financial advisor. This newsletter is based on my own analysis and research. Do not take any of it as financial advice.

*This newsletter was written at 9.30 AM on 30 January 2023 and completed at 3.30 PM the same day. To get early access to our newsletter, be our patron for as little as $1/month!