Overview
Last week, markets were hit by hawkish comments from FOMC member Lael Brainard while the Fed’s March minutes release was also poorly received with its emphasis on significant balance sheet reduction. Will Fed statements whip around the markets again this week?
Understanding macro linkages and shifts in Fed policy is currently the name of the game as financial markets are increasingly rising and falling together. In fact, as of April 8th, the 40-day correlation between Bitcoin and the tech-heavy Nasdaq 100 hit 0.6945 according to Bloomberg. The closer to 1, the stronger the correlation.
It seems the macro situation’s downside bias is growing stronger, but there still remains crypto-specific opportunities as the new asset class is developing more and more with each passing day.
Crypto
Sentiment in the crypto market according to the Crypto Fear & Greed Index has dropped to the fear zone whereas it was in the neutral zone last week. Today’s market bloodbath has seen the total crypto market cap fall all the way to $1.85 trillion. It was above $2 trillion just yesterday.
Bitcoin has been moving steadily lower after failing to overcome the $47K resistance area multiple times last week. Even the news of The Luna Foundation’s new BTC purchases (bringing its total to just under 40K BTC) failed to move the market as macro concerns and U.S. Dollar strength seemed to trump the bullish news.
The crypto king started the day trading above the key $42K level, but as of this writing, has fallen to the $40,000 area. Staying above this area will be key going forward, but the support zone extends all the way down to $37K.
Altcoin leader Ethereum is also feeling the effects of the risk-on carnage as it has fallen all the way to $3K as of this writing. Staying above this level will be key.
That being said, investors should still monitor ETH as “The Merge” date approaches. Previous major upgrades were in fact accompanied by massive ETH rallies in the month leading up to the release.
The current consensus is that the long-awaited switch to Proof-of-Stake will occur in late June, but as we noted in last week’s Crypto Weekly Lookout, “according to Polygon-based betting platform Polymarket, bettors are giving only a 21% chance that the merge will take place by July 1st and only a 50% chance that it will happen by August 1st.”
Since last week, the odds for a quick upgrade have only diminished according to Polymarket.
The current odds are:
12% chance of the merge taking place by July 1st
30% chance of the merge taking place by August 1st
57% chance of the merge taking place by September 1st
If the betting market is accurate, the current consensus might be off by two months or more. Investors should plan accordingly.
Another crypto to keep an eye on that has had major moves recently is NEAR Protocol. The layer-one crypto has skyrocketed more than 50% over the past thirty days. The market will likely be eagerly awaiting its upcoming stablecoin launch on April 20th.
The stablecoin, named USN, is expected to have an extremely attractive ~20% APR (annual percentage rate) which could rival Terra's Anchor Protocol and jumpstart a major capital rotation into the NEAR ecosystem.
Additionally, investors should take note of ZooKeeper (ZOO). The multi-chain dApp will be launching token farming on the Avalanche blockchain on April 13th. The move to integrate with Avalanche could give it a boost in the short-term.
Traders should also keep the Keep3rV1 token (KP3R) on their radars as its been generating A LOT of positive social chatter in recent days as measured by Crowdsense’s Social Sentiment Score as seen below.
The Andre Cronje founded token that acts as a "job board" has even been in the "Top 5 Rising Coins in Daily Positive Social Sentiment" for April 10th and April 11th.
Macro
On the macro front, investors should be prepared for more macro-induced market mayhem.
US March inflation numbers will be released on Tuesday April 12th at 8:30am ET. The median CPI YoY forecast stands at a whopping 8.4%. Already, the White House has warned of "extraordinarily elevated" inflation data and remember - they get an early look at the numbers.
That being the case, unless the figures are significantly higher or lower than expected, Fed policy shouldn’t move that much.
For past inflation releases where the figure was in-line or higher than expectations, Bitcoin would initially rally and then drop. We'll see if that happens this time as well.
Also on Tuesday, the Fed's Brainard will be speaking at a Wall Street Journal event at 12:10pm ET. She moved markets last week with her hawkish comments. Will she be even more hawkish after tomorrow's inflation numbers are released?
For context, according to CME Fed Futures as of this post, there is an 83% chance of the Fed tightening by 50 basis points at its May meeting and a 58% chance of another 50 basis points raise at its June meeting.
Interestingly, there's also currently a 31% chance of a 75 basis point hike for the June meeting which would bring the Fed Funds rate to 1.5% to 1.75%. If inflation numbers come in super hot, watch these numbers as an increase in the scope and pace of tightening has a tendency to drag down risk-on assets.
Lastly on the macro side, investors shouldn't be forgetting China and its zero-covid policy. They've already completely locked down their major economic center Shanghai with its 25 million people and reports are currently indicating that Guangzhou could be next. This likely caused China's stock market to perform poorly today which then spilled over to Western markets.
Guangzhou is home to 19 million people and also has one of the world's top 5 ports (with Shanghai having the largest port). It is arguably the most important economic center after Shanghai. More major ports and cities being locked down certainly doesn't help the supply chain crunch and resulting inflation.
Plus, as food scarcity seems to be an issue in Shanghai, any protest there is certainly a risk to keep in mind.
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