Crypto Corner - Summary of the week 17/01/2022

Written by: Yves, Head of Trading at Wirex

The total capitalisation of the cryptocurrency market is down 17% this year, and nearly 40% from its all-time-high. The rising uncertainty over the Fed’s monetary policy is weighing on all markets, traditional and digital, driving the Bitcoin price this week to its worst level since August 2021, and threatening to drive it further down towards the $30,000 support. A strong technical support at $41,000 was breached yesterday, precipitating the prospect of another ‘crypto winter’, similar to 2018. The Bitcoin price is quoting at $38,856 at the time of writing. and the Ether price is at $2,810, losing 11.8% this week. Most major cryptocurrencies are in the red. Only stablecoins and exchange-related tokens like Binance’s BNB and FTX’s FTT are either flat or slightly in the green.

The dynamics of the Bitcoin market have never been more correlated to traditional markets. Institutions, funds and treasuries poured record investments into the cryptocurrency sector last year, allocating a portion of their portfolios to the sector. And these same institutions, their clients, are now de-risking their position: they are selling all risky assets, including cryptocurrencies, regardless of the sector’s fundamental outlook. The forces at play are very different from the ones observed during the ‘crypto winter’ of 2018. We have now a leveraged market with large institutions at play.

There is no reason to believe that the current bearish dynamics won’t persist, at least until the FOMC meeting and Jerome Powell’s conference next Wednesday. The FOMC conference will most likely clear the uncertainty as the Chairman is expected to announce the schedule for several rate hikes this year. The first hike is expected as soon as the Fed’s bond purchases program ends in March. Consensus among Fed observers over the number of rate hikes this year grew to four separate hikes of 0.25% each. But there is also a probability to see a first larger hike of 50 basis points, or five hikes of 25bps this year, as many believe the Fed should send a strong message on its resolve to control inflation. The scenario of a larger first hike, a more severe schedule or a more hawkish outlook presented at Wednesday’s conference could easily trigger a sell-off in the likes of the March 2020 correction.

Inflation adjustments, as severe as they can be, are not meant to hinder the market’s performance for long. Inflation usually points towards economic recovery. After all, the US unemployment rate is falling fast and inventory levels are at their best. In an inflationary regime, the business profits that are driven by the increased demand created by economic growth should outweigh the losses incurred from lower prices: but the full supply chain just needs some time to adapt and find equilibrium. If the tightening policy successfully reduces inflation, and regardless of the short term panic that could send the market 50% below, we are likely to see new highs on the equity, and cryptocurrency markets, before the end of the year. History shows that there is good cause for optimism on inflation.

Despite the bumpy road ahead, The sector’s fundamental outlook is still very promising. Businesses are still betting on the crypto economy. Walmart is reportedly preparing to ‘venture’ into the world of NFTs, the metaverse. The retail giant filed patents for “virtual reality softwares”, “blockchain software” for “use with digital currency” with “non-fungible tokens (NFTs)” and more. Huobi released a report on adoption this week involving 3,144 US adults. The Crypto Perception Report shows that 28% own cryptocurrencies and 25% plan to buy cryptocurrencies. It shows that adoption is always rising, but also points out concerns on regulation. Meanwhile the NYC mayor Eric Adams is optimistic, and already an owner as he turned his first paycheque into cryptocurrencies this week. Regulations are key to make this year another successful year for the crypto market. Will politics and regulators finally agree on the rules in 2022?


The above is an opinion piece and therefore should not be taken as financial advice. Please do your own research thoroughly when looking at Cryptocurrency.

a lot of FUD , but as always we will bounce back soon. :fire:

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