Updated: Mar 8
What should investors be prepared for this week in the cryptocurrency market?
More volatility - similar to last week.
Crypto last week surprised many with Bitcoin rallying up to 20% at one point on Monday in the face of slumping equity markets. As Bitcoin has been trading as a risk-on asset, this de-coupling was unexpected to many, but the likely cause was Russian and Ukrainian money fleeing into the crypto space, especially since Russia has limited its citizens from acquiring foreign currency amid the Ruble's crash.
Going forward however, it's quite possible that the perceived safe haven status and associated decoupling won't continue as there's only so much money that can flee into crypto from these countries.
All financial markets are currently being whipped around by headlines, not fundamentals. And it's very difficult to predict these market-moving headlines. That being said, here is a detailed overview of risks and opportunities to watch out for in the week ahead.
Another week and another round of talks between Russia and Ukraine in Belarus. It seems the fourth round of talks are already on their way. Any hint of ending the conflict is clearly a win for markets, but it's likely that nothing will come from the talks in the near-term as both sides are very far apart in their demands.
Any negotiated ceasefire would probably be bullish short term, but Russia has a history of breaking ceasefire agreements. It's very possible that they could use a ceasefire to replenish much needed personnel and mobilize a reserve force from the civilian population. There are already rumors circulating of a draft being prepared in Russia.
Assuming this scenario plays out, it would suggest the conflict could get much bloodier, not good for markets. Investors should also be watching out for more headlines related to fighting near nuclear power sites as it's clearly in Russia's interests to take control of Ukraine's domestic energy.
Last week there was the SWIFT sanctions against Russia and over the weekend Mastercard, Visa, and PayPal joined the fray. It's getting increasingly difficult for Russians to exchange their quickly depreciating rubles, putting further pressure on the bear. Moreover, the US House is set to vote this week on removing trade relations with Russia - including banning oil imports - a major major move.
However, Russians can still trade crypto via the main centralized exchanges such as Coinbase and Binance as there is no law preventing it - as of yet. An additional source of confusion could come from reports that Russia will disconnect itself from the global internet from Friday March 11th.
If this comes to fruition, it could indicate that Russia is preparing to unleash its cyberwarfare capabilities on the West while protecting its own internet. Russia could potentially even control which web sites its citizens access. This means it could block access to crypto exchanges to halt money fleeing from the country. Work arounds would still exist, but if the government tried hard enough, they could limit most avenues.
Lastly, the contagion factor is still present as many Western firms have investments in Russian assets. Spillover effects can sometimes take a while to play out, but the Western owners of these Russian assets are certainly taking a haircut. Remember, the Russian stock market is still closed.
There are no Fed speakers this week, but US monthly inflation data does come out Thursday morning at 8:30am ET. The current median forecast for CPI YoY is 7.8%. The median forecast for Core CPI YoY is 6.4%.
For past releases of elevated inflation figures, Bitcoin head faked many investors with an initial rally followed by a strong move lower. The logic being that at first thought high inflation is bullish for Bitcoin due to its perceived inflation hedge status. However, if examined further, the higher inflation would likely mean a more aggressive Fed tightening which is bearish for risk-on assets.
For next week's much anticipated Fed meeting, CME Fed Futures are currently pricing in a 92% probability of a 25bp hike and an 8% probability of no hike at all. These figures have changed drastically from a month ago when investors were pricing in a 50bp hike. However, if inflation is more elevated than anticipated there is still a small chance that the Fed could go big instead of going cautious.
The Fed is certainly in a tight spot since if they're too aggressive they risk slowing down the economy, but if they don't tighten enough they risk losing their credibility. It's also important to remember that the energy price shock that we are seeing now is short term inflationary, but eventually deflationary or disinflationary as the high energy prices act as a tax and reduce non-energy spending which hurts overall demand.
Sentiment in the crypto space is still in extreme fear territory according to the Crypto Fear & Greed Index, not unexpected.
Bitcoin (BTC) has been moving in a range between $37.5K and $45K over the past week and as of this post is trading at $38K, near the bottom of the range. If the $37.5K area doesn't hold, a crash could be in the cards. Conversely, if BTC manages to overcome the $40K resistance again, it could return to the mid $40K's. Major price moves are not unexpected.
One smaller crypto that could be interesting this week is Bitcoin Private (BTCP). This coin has been a Crowdsense "Top 5 Rising Coin in Daily Positive Sentiment" for March 5th, 6th, and 7th. When BTCP first made the top 5 list on March 5th it was trading at $1.5914. As of this post, it's trading above $2 - more than a 25% gain. It's sentiment moves can be seen in the chart below.
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