Why is the Crypto Market Going Down Today? (Jan. 12)

The crypto market is going down today, as investors react to the ongoing risk of Federal Reserve independence. It is also retreating as investors await key events this week, including the start of the earnings season, upcoming US inflation data, and the vote on the CLARITY Act.

Crypto Market Going Down Amid Fed Independence Risk

Cryptocurrencies and the stock market dropped after the Justice Department served subpoenas to the Federal Reserve and Jerome Powell.

In a statement, Powell noted that the subpoenas related to a congressional statement he made in July on the ongoing renovations of the bank’s headquarters.

He also added that the potential lawsuit was because he has resisted cutting interest rates aggressively, as Donald Trump has suggested. As such, there is a likelihood that Trump will use the new lawsuit to fire him before his term ends later this year. Trump attempted to fire Lisa Cook, another member of the Fed’s board of governors.

While Powell’s term as the Fed Chair ends this year, he may opt to remain as a governor for years. As a result, Trump may be attempting to push him out so that he can nominate a friendly official.

However, there is a likelihood that the administration will not succeed because of the court system in the United States. Additionally, Senator Thom Tillis has warned that he will not vote for any Federal official until the lawsuit is resolved.

CLARITY Act Passage Doubts

Meanwhile, the cryptocurrency market is declining as doubts persist about the CLARITY Act. In an interview, Charles Hoskinson, Cardano’s founder, warned that the Senate may not pass the bill this quarter, blaming David Sacks.

Coinbase, the largest crypto exchange in the United States, also threatened to withdraw its support for the act if it restricts offering rewards to customers who hold stablecoins on exchanges. Banks have lobbied aggressively against allowing these products, arguing that they will siphon funds from their institutions.

Odds of the CLARITY Act becoming law have dropped sharply on Kalshi. For example, the odds that it will be passed before May have dropped to 38%. Similarly, the odds that it will be passed before April have fallen to 19%.

Bitcoin ETF Outflows Have Contributed to the Ongoing Crypto Crash

Meanwhile, there are signs that demand for Bitcoin ETFs has continued to wane. Data by SoSoValue shows that spot Bitcoin ETFs shed over $249 million on Friday, the fourth consecutive day of losses.

These funds have now lost $209 million in assets this month, the third consecutive month of losses. Their total inflows since inception are $56.4 billion, bringing the total net assets to $116 billion.

Spot Ethereum ETFs have also had outflows in the last three consecutive days. They lost $93 million on Friday after losing $159 million on Thursday and $98 million on Wednesday

Key Macro Data and Earnings Season Ahead

The crypto market is going down as investors wait for key macro data from the United States. The Bureau of Labor Statistics (BLS) will publish the latest Consumer Price Index (CPI) data on Tuesday this week.

Economists polled by Reuters expect the report to show that the headline inflation remained at 2.6% in December. A higher-than-expected inflation report will be bearish for Bitcoin and other altcoins as it will reduce the odds of more cuts this year. Indeed, in a note, analysts at JP Morgan warned that the bank may not cut rates this year and then hike in 20277.

The crypto market is going down as traders wait for the upcoming earnings season in the United States, which will start this week. The biggest American banks like Goldman Sachs, Morgan Stanley, and JPMorgan will publish their latest results starting from Tuesday.

Finally, there are geopolitical risks as Donald Trump threatens to attack Iran as protests in the country continue. Such a move would lead to instability in the region, a move that would push crude oil prices higher in the near term.