What should investors expect in the cryptocurrency market this week?
Probably more volatility along the lines of last week.
As we all know by now, crypto has been largely trading as a risk-on asset as we inch closer to the Fed’s first rate hike in March. This risk-on behavior has not changed during times of war as many investors sold risk-on assets and fled to the safety of the US Dollar and gold among others as a result of Russia’s invasion of Ukraine last week.
We also know that the correlation between crypto and equities has been quite elevated in recent times as more institutions pour money into the crypto market and as all financial markets prepare for the end of easy monetary policy.
So what could add to or lessen the expected volatility this week?
Geopolitics
First off, an end to Russian aggression would certainly be welcome. Already today, Ukraine and Russia are having negotiations, but the optimism from the talks may easily fizzle out as Russia could very well just be using the talks to buy time to prepare for another major assault.
Additionally, over the weekend top Russian banks were kicked out of the international bank network SWIFT - a major escalation putting a great deal of pressure on Russia's economy. Their central bank has already doubled interest rates to 20% and their stock market is closed for this Monday.
Western sanctions have also limited access to Russia’s hundreds of billions of reserves. A major depreciation of the Ruble is here and it will likely get worse. However, there is supposedly a carve out in the SWIFT restrictions for energy transactions as Russia supplies a major portion of Europe’s energy.
But if you’re Russia, would you still decide to sell your energy to Europe for currency that you then could no longer use in international trade? Investors should be prepared for this scenario as higher energy prices would only make the global inflation problem that much worse and leave less disposable income for people to spend or invest. The situation could become a battle of economic pain tolerance.
Be wary of the poked and prodded bear in the corner. Already, Putin has ordered Russia’s nuclear deterrence forces on high alert.
Then there’s the contagion factor. Many European banks likely have significant exposure to Russian assets. Assets that are quickly losing value and becoming illiquid. Europe may have agreed to largely de-SWIFT Russia, but they are not insulated from its negative effects.
All of these factors could potentially strengthen the US Dollar, acting as another headwind to crypto prices.
Macro
Moving along from the geopolitical mess, there’s also a busy macro week ahead of us with Fed Chair Powell delivering his latest monetary policy testimony to Congress. Other members of the Fed will also be speaking. Everyone will be paying attention to any hints on future Fed policy. As of this post, CME Fed Futures are pricing in a 93% chance of a 0.25% hike and only a 7% chance of a 0.5% hike in March.
Below is the schedule of all Fed speakers:
Monday February 28, 10:30am ET, Atlanta Fed President (non FOMC voter) Bostic speaks
Tuesday March 1, 2pm ET, Atlanta Fed President Bostic speaks
Wednesday March 2, 9am ET, Chicago Fed President Evans (non FOMC voter) speaks
Wednesday March 2, 9:30am ET, St Louis Fed President Bullard (FOMC voter) speaks
Wednesday March 2, 10am ET, Fed Chair Powell testifies at House committee
Thursday March 3, 10am ET, Fed Chair Powell testifies at Senate committee
Thursday March 3, 6pm ET, NY Fed President Williams (FOMC voter) speaks
Friday March 4, 8:45am ET, Chicago Fed President Evans (non FOMC voter) speaks
Crypto
Sentiment in the crypto space remains nervous as the Crypto Fear & Greed Index is at 20 (out of 100) as of this writing, indicating extreme fear.
Bitcoin (BTC) needs to overcome and hold the $40K resistance level to gain meaningful traction, but the downside bias appears great due to the macro and geopolitical headwinds. Revisiting the $30K support is not out of the question in the short-term, but expect choppy action.
Ripple’s XRP should be on investors' radar as Ripple has been on the receiving end of a string of favorable rulings in its SEC case. As of this writing, XRP’s sentiment as measured by Crowdsense has increased by nearly 11% over the past day as seen in the chart below.
Another coin that shouldn't be ignored is ZCash (ZEC). The privacy-focused crypto could benefit as investors try to escape the effect of the new sanctions. According to Crowdsense, ZEC sentiment is up 21% over the past day as seen in the chart below.
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