Crypto may take a breather as investors focus on banks’ finances
by Arthur · April 16, 2023
All eyes were on Ethereum last week as it completed another major technical upgrade (the “Shanghai” update) after one in September (the “Merge” event) and the price of the ether token surged. While ether climbed through the week, bitcoin – which was the best this year – traded more choppily. It rose 8% for the week, according to Coin Metrics, thanks to a boost from ether’s post-Shapella rally. Ether went up 12.32%. Bitcoin received an additional boost after Thursday’s March producer price index release confirmed the cooling inflationary trend from Wednesday’s consumer price index update. But while inflation appears to be slowing, it remains above where the Fed feels comfortable, and investors are worried about whether the central bank can engineer a slowdown in the labor market that doesn’t tip the economy into recession. Investors are also weighing the minutes of the Federal Reserve meeting in March, which showed that the central bank expects the fallout from the US banking crisis to tip the economy into recession later this year. A downturn would be an important time for crypto to show its stripes, said Yung-Yu Ma, chief investment officer at BMO. “It could be the first recession test for crypto,” he told CNBC. “Will it be a stabilizing event that leads to greater institutional and investor interest in crypto? Or will it be an event where people lose money broadly and financial concerns spill over into the crypto space.” “I think it could go either way, but so far what we’re seeing in the crypto space is encouraging,” he added. BTC.CM= ETH.CM= line 2023-04-10 Bitcoin (BTC) and Ether (ETH) during Shapella upgrade, inflation data Callie Cox, an investment analyst at trading platform eToro, said when it comes to the crypto market, Bank income is highest on the radar hers heading into the week. “This earnings season in general is going to be a focal point for markets and corporate America, but the start of earnings season is heavily weighted toward financials and banks — the sector that’s most scrutinized right now, and the industry that has created the decentralization argument,” she said. Decentralization and the idea that people can transact without going through a financial institution is at the heart of bitcoin’s design. Bitcoin rallied 22% in March as the crisis among US regional banks opened investors’ eyes to the diversity of bitcoin’s narrative — particularly that cryptoassets can serve as a hedge against uncertainty and the network can serve as an alternative banking system. Cox added that the market could take a breather this week as the economic calendar is calmer. However, there are several Fed officials scheduled to speak as well, which could spark some volatility. “Investors can continue to be discerning and look for perceived quality, even in the crypto space,” she said. “It has helped bitcoin this year since it is seen as a risk asset outside of crypto but a store of value within crypto. Ethereum is a brand name in crypto and it has innovations to point to, but it is seen as a building block chain, which cannot be equally appealing when people turn away from risk.” In addition, Securities and Exchange Commission Chairman Gary Gensler will testify before the House Financial Services Committee about his agency’s oversight. Investors will be watching to see if he continues to emphasize that most crypto tokens are securities and should fall under securities laws. After Ethereum’s transition to a proof-of-stake protocol last year (the Merge upgrade), he has argued that ether can be a security. Despite the big price rally this year, the general US regulatory crackdown on crypto that began in January has been a dark cloud over the industry. Last week, both bitcoin and ether broke through key resistance levels. Bitcoin passed $30,000 for the first time since June and ether rose above $2,000 for the first time since August. Both cryptocurrencies had maintained these levels by the end of the week, confirming the uptrend chart analysts have been following since the beginning of the year. Ma said he expects to see consolidation for bitcoin around the current $30,000 level, depending on how it behaves in the face of a slowing economy and how much it can disconnect from the Nasdaq. “The mass market selling point for crypto from an investment standpoint was lower correlation,” he said. “The big turnaround for investors was during times when it was pretty strongly correlated to the Nasdaq. During those periods, the breadth of institutional investor interest started to wane, because if that’s whether it’s the primary driver or the primary investment task — well, it is just too much correlation.”
