After a faint glimmer of hope, the crypto market turns red again.
The reversal wasn’t much of a shock to many crypto analysts. “Bitcoin’s
DiPasquale believes crypto is still “facing pressure from traditional markets.” Bitcoin, therefore, couldn’t push through the “resistance zone between $31K-$32K, resulting in a breakdown from the range it set over the weekend.”
So, what’s holding the broader market back?
[Ed note: Investing in crypto is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.]
Wall Street is fretting over two big headwinds that can wipe out risk assets.
At a financial conference Wednesday, JPMorgan CEO Jamie Dimon told investors he’s worried about the Fed’s tightening and the fallout from the Ukraine-Russia war. He thinks we are headed for an “economic hurricane” and is “going to be very conservative with [JPMorgan’s] balance sheet”
“Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this… That hurricane is right out there, down the road, coming our way,” Dimon warned investors
Dimon echoes the prevailing sentiment that’s been weighing down stocks, and by extension, cryptos this year. As I wrote a few weeks ago, “major cryptos are highly correlated to the stock market. They also have a high beta to stocks. That means crypto, in effect, amplifies stock moves. If stocks soar, cryptos soar higher. And vice versa. If stocks tumble, crypto goes into free fall.
Although we’ve seen a brief crypto “decorrelation” from stocks, it’s not playing to crypto’s advantage. Over the past two days, bitcoin lost 7% to around $29,700 and ethereum plunged 9% to around $1,800. Meanwhile, the Dow, the S&P 500, and the Nasdaq stayed flat for the most part.
This could be the aftershock of the stablecoin implosion, which sowed fear and scared many investors off of cryptos.
Now it all comes down to the question of when investors will regain their appetite for risk because, apart from a few instances, crypto prices have been largely driven by the broader risk-on trade.
“I think the key for long term price appreciation is, we need to see a risk bid come back into markets,” wrote Ben McMillian, chief investment officer at IDX Digital Assets. “It means that investors need to see inflation peaking. I think they need to see language out of the Fed that helps inform expectations around when they might pare back on the tightening,” he added.
If inflation peaks and there’s more clarity to the Fed’s agenda and the war in Ukraine, McMillan believes bitcoin may be poised to “getting back to even for the year, maybe even a little bit positive.”
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