May 09, 2022

WEEK AHEAD: Crypto assets under pressure after Fed rate hike, risk appetite dried up Thursday, triggering selloff

BTC dropped below 35K this week following market volatility after the Fed hiked the U.S. benchmark rate by 50 basis points (0.5%) on Wednesday. Initially, risk assets reacted positively to Fed Chair Jerome Powell’s remarks as the 50 bp move was widely expected and confirmation that a 75 bp rate hike was not under consideration, but Thursday’s trading session brought a selloff in crypto and stock markets. Right after the Fed’s comments, BTC looked to have recovered from early May setbacks and made a move towards the $40K price level, but on Thursday, risk appetite dried up as concerns for more 50 bps rate hikes and the possibility of a monetary policy mistake leading to a recession. U.S. stock markets notched the fifth weekly drop and BTC down close to 12%, and ETH more than 13%. Most tokens were under pressure after the market started pricing a 90% chance of a 75 bp rate hike despite the Fed’s comments. Crypto markets shrank by $146B as a more bearish sentiment crept in. Fed to remain data-dependent and strong U.S. jobs report on Friday to be followed by more relevant U.S. inflation data on Wednesday. The U.S. dollar index is near 20-year highs, lifted by strong yields as the market evaluates the possibility Fed keeps hiking until the U.S. interest rate hits 2%.

BTC near capitulation zone unless investors reverse the selling trend as current price near the $33,500 key level that if broken could lead down the $20,000-24,000 range if supports around $32,000 don’t hold. The chatter of Bitfinex whale stacking buy orders below $34K. Microstrategy in the news after the Q1 earnings call revealed a $205M loan backed by BTC holdings. The company would face a margin call if the price fell to $21K unless more BTC is added to the position at discounted prices.

Crypto adoption tailwinds featured a U.S. bill to allow crypto investing in retirement 401(k) portfolios, following news that Fidelity announced it would allow bitcoin in retirement portfolios only to face backlash from Washington with Senators Warren and Smith questioning the decision, with the firm issuing a statement noting it has a proven track record of doing what is in the best interest of their customers. Coinbase was revealed as the firm that took out the first BTC loan backed by Goldman Sachs. Binance and Sequoia Capital committed $500B and $800B to fund Musk’s Twitter bid. Luxury goods brand Gucci to accept cryptocurrencies starting at some U.S. stores, which follows rival group LVMH already started crypto payments at one of its labels. Bahamas Prime Minister said a regulatory regime is in place to enable crypto businesses to operate on the island.

Headwinds this week included Spain suspending Binance derivative services, as the regulator is processing the application for a full-fledged license like the company has in France. Argentina Central Bank barred financial institutions from providing cryptocurrency trading to customers four days after two of Argentina’s main banks had announced plans to offer crypto for purchase. 

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