Crypto’s rally on Binance news could prove to be short-lived

Crypto markets stabilized Wednesday after a brief dip Tuesday following news that Binance and former CEO Changpeng Zhao had entered into an agreement with the US government, terms of which include Zhao’s guilty plea and a payment of $4.3 billion in fines and forfeitures from Binance. 

Bitcoin and ether posted gains this morning, rallying around 2% and 5%, respectively. Stocks also opened in the green, with the Nasdaq Composite up around 0.8% and the S&P 500 gaining about 0.6% in the half hour after the open. 

Crypto’s rally is not surprising, analysts say, as Binance’s settlement with the US Department of Justice is largely being perceived as a step in the right direction, and not just for the exchange. 

“This is very good news for the industry as a whole,” Noelle Acheson, author of the Crypto is Macro Now newsletter, said. “It’s not just the ‘cleaner image’ that the Binance settlement and change of leadership confers on all market service providers, as the DOJ has shown that its arms are long. It’s also the removal of an ominous overhang, a dark cloud of ‘regulatory risk’ that many feared could break Binance, which would have been really, really bad for investors, traders and savers everywhere.” 

Read more: Binance fallout ‘opportunity to start a new chapter for this industry’: Coinbase CEO

Tuesday also saw the release of the minutes from the Federal Reserve’s last policy-setting meeting, which showed a decidedly dovish shift that, after digesting the news, traders seem to like. 

A key point in the minutes was the central bank’s decision to make all future meetings “live,” or strictly dependent upon on economic data, which at the time of the decision would suggest more rate hikes could be possible if inflation flares up again, Tom Essaye, founder of Sevens Report Research said. 

Still, Wednesday’s equity rally could be short-lived if traders’ expected rate-cut timeline plays out.

“Market-based Fed policy expectations barely budged at the release and continue to call for a first rate cut in May with additional cuts to follow over the summer and into the fall, which should remain a tailwind for stocks near-term,” Essaye added. 

Risk assets, like crypto, are also poised for a correction based on inflation data and Fed interest rates, analysts from Amberdata said in a report Tuesday. 

“Looking ahead into the end of the year and the start of 2024, risk assets are going to be data dependent as ‘hot’ data will warrant a hawkish reaction in markets and potential resurgence in volatility,” Essaye said.

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