Bitcoin and the US dollar

Top Crypto Assets Consolidate as Markets Adapt to Macro Realities

NEW YORK, NY, USA, April 8, 2022 / — ALT 5 Sigma Inc., a global fintech that provides next-generation blockchain-powered technologies for tokenization, trading, clearing, settlement, payment and safe custody of digital instruments, releases its assets digital every week.

• There is no getting around the Fed/yield/dollar momentum for crypto

• Major upcoming events in the United States, Canada and Europe

• China insists crypto traders remain on high alert for policy response

• There is no getting around the Fed/yield/dollar momentum for crypto

• Major upcoming events in the United States, Canada and Europe

• China insists crypto traders remain on high alert for policy response

Macro momentum remains a primary focus and driver for major crypto assets. Markets continue to adjust to the combined effects of soaring inflation, tighter monetary policy, war in Ukraine and covid-related lockdowns in China. Bitcoin, Ethereum, and Solana have retreated from recent highs reached last week and appear subject to further short-term corrective pressure.

Acceleration in Fed expectations tightening…

Rising inflation is a central theme for markets and policy makers. This caused the Federal Reserve and other central banks to tighten monetary policy much faster than market participants expected just a few months ago. Last week, the Fed signaled that a faster pace of interest rate hikes is possible in the months ahead. And just as importantly, it should start shrinking its balance sheet from next month, much faster than in the 2017-2019 cycle (about double the pace).

…brings higher yields and a stronger dollar, putting pressure on crypto prices

The result was a dramatic rise in US yields that helped the US dollar appreciate from already high levels. Since crypto assets such as bitcoin are sometimes seen as a hedge against the falling US dollar – and often move against the greenback – the Fed-induced rise in yields/dollar puts some pressure on major crypto assets (see attached chart of bitcoin overlaid with an inverted display of the US dollar).

(See table)

U.S. inflation data update coming soon

The week ahead will bring the latest update on US inflation, with markets expecting the March CPI to rise to 8.4% yoy from 7.9% in February. This would mark a new 40-year high for the series and bolster market expectations for more aggressive Fed tightening going forward.

US tax deadline

The approaching tax day in the United States (April 18) is also attracting attention. The event increases the possibility for market participants to sell some of their financial assets in order to raise funds to pay their annual tax bill. Despite the massive sell-off in bitcoin (and other crypto assets) at the end of 2021, it was still up around 77% from 2021 as a whole. This leaves a potentially heavy tax bill for investors who made some of these gains during the period. It is not at all clear how much, if any, crypto selling this may entail at present. But investors should be aware of this narrative and the potential risk it poses to crypto prices as tax day approaches.

Upcoming events in Canada, the UK and the Eurozone

Inflation and central bank policies will also be highlighted in other economies over the coming week. The Bank of Canada is expected to raise its key rate by 50 basis points to 1.0% after its latest reading of inflation jumped to 5.7%, well above the target range of 1% to 3% of the central bank.

In Europe, UK CPI is expected to rise to 6.0% YoY in March from 5.5% in February (a new cycle high). On the continent, the European Central Bank meets on April 14; the economic drag resulting from the war in Ukraine should prevent the ECB from starting its own tightening cycle for now, but higher inflation suggests that it will also have to start raising rates. Expect next week’s meeting to find out when this process could begin.

Chinese tensions persist…

The covid-related lockdowns in China continue to put pressure on growth and also need to be monitored. A key service sector indicator (Caixin Services PMI) fell significantly into contractionary territory last week. And in the coming week, data on inflation, international trade and new loans are expected.

crypto investors should be on the lookout for Chinese policy easing measures

Unlike much of the rest of the world, China’s central bank is more likely to ease monetary policy going forward, as weaker growth poses a greater risk than higher inflation at present. Therefore, markets should be on the lookout for such measures (or perhaps fiscal stimulus) to deal with the current tensions. In the past, China’s easing measures have sometimes supported risky assets. As such, major crypto assets could find at least temporary upside if and when Chinese policymakers respond with stimulus.

On the cards

Bitcoin retraced about half of the rally from $37,625 to $48,190 in the second half of March. This recent spike combined with the 200-day moving average at $48,250 is potentially formidable resistance. This resistance, combined with the macro backdrop described above, suggests further consolidation and a potential near-term correction. Last week, Ethereum temporarily breached but failed to hold above its 200-day moving average, currently at $3,490. It has so far retraced about a third of its mid-March rally from $2,492 to $3,581 and appears to be facing the same near-term consolidation/correction pressures as bitcoin.

Robert Lynch
Research and Strategy Manager
ALT 5 Sigma Inc.
[email protected]


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