The market is witnessing significant declines on Tuesday, driven by a number of factors, including a confluence of regulatory uncertainties and economic indicators that suggest a challenging path ahead. 

Bitcoin (BTC), Ethereum (ETH), and Solana (SOL) have all posted notable losses, with broader implications as investors brace for potential shifts in U.S. monetary policy. According to analyst Brian Rudick, senior strategist at crypto trading firm GSR, the downturn has been exacerbated by disappointing inflows into cryptocurrency funds and heightened regulatory scrutiny, particularly concerning the status of Ethereum as a security.

Bitcoin’s current price stands at $60,083, marking a 4.1% decrease over the last 24 hours and a 15% reduction this month. Ethereum has fallen to $2,951 over the past 24 hours, a drop of 6.9%, while Solana is down 8.9% over the same time frame. Solana is now trading at $123, culminating in a 20% decline over the last month. According to Coinglass data, $387 million in crypto positions was liquidated in the past 24 hours. 

What’s Behind the Declines

Rudick offered some insights into the reasons for the current market downturn. “Risk assets are underperforming ahead of the Fed’s monetary policy decision and press conference tomorrow, which could see the Fed take a hawkish tone with inflation proving to be more persistent than originally thought,” he told Unchained.

This sentiment comes on the heels of new economic data indicating hotter-than-expected wage growth, potentially prompting a stringent response from the Federal Reserve. Rudick adds that “we got hot wage data today,” signaling potential inflation concerns that might influence tighter monetary policy. Meanwhile, the 2-year yield of the US Treasury is back above 5%, making it even harder for the Fed to cut rates, which is beneficial for risk assets such as crypto.

Moreover, the market is reacting to several external factors that compound the bearish outlook. “Inflows into the US spot Bitcoin ETFs have turned decidedly negative over the last several trading days,” Rudick noted. “And the debut of the Hong Kong crypto ETFs disappointed with just $12m in day-one trading volume.”

Read more: Hong Kong Doesn’t Define Ether as a Security, Says Issuer as Spot Crypto ETFs Go Live

Regulatory challenges also continue to cast a shadow over the market. Recent court filings revealed that “the SEC approved a formal order of investigation into whether ETH is a security in early 2023,” highlighting ongoing regulatory risks, according to Rudick.

Rudick remains cautious about the near future. “The positive catalysts appear to be waning while the negative catalysts seem to be rising,” he said. With the fading impact of events like Bitcoin’s halving and the uncertain regulatory and economic landscapes, Ruddick is skeptical about immediate recovery prospects.

As other potential negative pressures, Rudick cited factors such as the Mt. Gox trustee repatriating 142,000 BTC through the end of October, and the “seemingly greater regulatory risk around USDT.”

Potential for a Rally?

Mark Connors, head of research at investment firm 3iQ, offered a different view, suggesting that despite current challenges, there might be an upside that’s similar to past market recoveries. “Markets are approaching an August 2015, September 2019, August 2022, or March 2023 moment, when rate and currency volatility crashes markets and prompts swift and decisive action by the Fed and potentially Treasury as well,” Connors told Unchained via email. He believes that “BTC’s unique qualities will see a rally, as it did in March 2020 and March 2023, leading a broader digital asset rally.”

But Connors also points to recent movements in the bond and currency markets as indicators of brewing trouble. “Between this month’s sell-off in the UST10Y (-3.3%) and the historic one-day move in the Yen, we see MORE, not less market risk to the downside until the Fed capitulates and restarts QE.”

While there might be potential positive developments such as large wealth managers buying spot bitcoin ETFs for their clients or significant legislative advancements, Ruddick concluded, “I struggle to see likely catalysts to push us past all-time highs coming to fruition over the near term.”