Market News from FxPro

Bitcoin is losing 2% over the past 24 hours, hovering near $18.7K at the time of writing. Attempts at intraday gains have been shattered by the adverse market reaction following the Fed's forecasts and comments. BTCUSD has been declining for eight of the last nine days.

Total crypto market capitalisation is down 2% to $900bn for the day. Ethereum remains worse than the market, losing 5.5% in the last 24 hours, while the top altcoins are changing in a range of -2.2% (DogeCoin) to +3.5% (XRP).

Below current levels, Bitcoin has traded for just 17 hours in June, and on a sustained basis, it has not been lower since last November. Barring potentially very minor levels at $17K and $16K, on the chart, there are no meaningful consolidation areas for the first cryptocurrency down to $12K. Going down there looks like a very ambitious task for the bears, even with the current market.

News background

A US court has ordered Tether, the issuer of USDT, to provide USD reserves data, including account statements from banks and other institutions.

Meanwhile, a new bill has been introduced in the US Congress that proposes to ban the creation of algorithmic stablecoins like TerraUSD for two years.

The XRP token has risen 22% in the past six days amid a possible SEC court case against Ripple Labs on an expedited basis. Both sides have petitioned the court to do so.

"White Hacker" received 400 ETH (about $531k) from Arbitrum for identifying a vulnerability in Arbitrum's protocol code that could have resulted in millions of dollars in lost cash.

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According to Alex Kuptsikevich, a senior analyst of FxPro, as most had predicted, the Federal Reserve raised the rate yesterday by 75 points to 3.00-3.25%. However, all participants' attention was drawn to the accompanying comments and forecasts, a change that underpinned the latest market movements and may explain its dynamics in the coming days.

The outlook for the economy has darkened considerably, with GDP forecasted to rise by a flimsy 0.2% in 2022 against June's projection of 1.7%. Unemployment is expected to grow from 3.7% now to 4.4% next year. Both of these forecasts point to a reversal of the economic cycle to a downturn.

Perhaps most sensitive to the markets was the change in key rate expectations. For the end of this year, the Fed plans to raise the rate to 4.4% from 3.4% three months earlier. At the end of next year, the rate is projected at 4.6% versus 3.8% in June.

This outlook sets the markets up for another 75-point increase in November and another +50 points in December. The current Fed Funds Rate level is the highest since the beginning of 2008, breaking a trend of declining peaks over the last 40 years.

A significant shift for markets is also Powell's comments calling for a recession to be seen as a price stability payment. This is a very bearish signal for markets that they may have to endure more pain, and the recent sell-off in equity and bond markets has not shaken confidence in their chosen path.

This potentially means more pressure on markets in the coming days and more demand for the dollar as a higher-yielding currency.

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Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin has gained 3.8% in the last 24 hours to $19.4K. Quotes have stabilised near the lower bound of the three-month range. Ethereum gained temporary support after falling below $1300 and is up 6.7% in 24 hours.

XRP jumped 28% overnight and 66% over the week to $0.54, posting the highest gain among top-100 cryptocurrencies. There are rumours that crypto whales have switched from ETH to XRP after the SEC and Ripple Labs asked the court to speed up hearings for their case.

Other top altcoins are rising between 4.5% (BNB) and 7.1% (DogeCoin).

Despite this upward move, the technical picture does not yet point to a break in the downtrend, and widespread monetary policy tightening leads us to expect further pressure on markets.

On the other hand, we see precious metal prices rising with a 5% increase in crypto market capitalisation over the past 24 hours. This could be the start of a new trend, where investors are looking at alternatives as a safe haven for capital due to concerns over the solvency of countries.

News background​

Changpeng Zhao, CEO of the world's largest cryptocurrency exchange Binance, said bearish trends are common and healthy for the crypto market. He said the crypto industry still has room to grow, while inflation and rising energy prices have drawn attention to cryptocurrencies.

According to Oklink, the recent drop in Ethereum resulted from miners' activation. Mining pools have dropped almost 17,000 ETH in the last seven days alone.

The final version of the European Draft Crypto Asset Markets Act (MiCA) equates NFTs with securities. Technically, the MiCA is still open for amendments, but other reports suggest that the European Union has finalised the bill's full text.

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According to Alex Kuptsikevich, a senior analyst of FxPro, the dollar is developing its FX offensive, leaving it at highs against a basket of the six major currencies. The main driver of this rise remains the monetary policy differential, where the US has had the most hawkish stance amongst the major central banks for over a year.

The Fed has raised the rate three times in three months by 75 points. Fed members’ expected rate path suggests one more 75-point hike in November, another 50 in December and 25 next February.

A couple of months ago, short-term investors were speculating about the point at which the Fed would slow the hike and when it would move to lower it. The sentiment is now shifting towards when other central banks will catch up with the flagship central bank. However, not everyone can do that.

On Thursday, the Bank of England and the Swiss National Bank raised their rates by 50 points. Several other smaller European central banks took earlier similar steps. Japan is not in a position to tighten its policy.

The reaction on the markets is eloquently showing that this is not enough. The Swiss franc and Japanese yen were sharply lower on Thursday after their central bank meetings. GBPUSD held up most of the day on Thursday but returned to rewrite lows from 1985 on Friday, hitting 1.1160. The BoJ’s first currency intervention in 24 years halted the yen’s gaining momentum yesterday.

The Chinese renminbi is also involved in massive selling against the American currency. The USDCNH offshore rate surpassed 7.11 on Friday morning, surviving an unprecedented 6% rally in just over a month. The pair had reversed down from 7.20 in 2019 and 2020, with the People’s Bank of China’s help, but the renminbi risks losing this final 1.2% from now without much resistance.

Despite more than 20-year highs for the dollar, it is hardly prudent to bet on a trend reversal as there are fundamental reasons behind this rally, which are unlikely to change today or tomorrow. It now seems more reasonable to expect the dollar rally to lose strength when the Fed slows the pace of rate hikes and stops announcing increasingly hawkish rate forecasts.

The technical view of market dynamics also does not give any hope of a reversal. We are seeing very orderly selloffs of the major currencies, whereas abnormally sharp moves and capitulations often characterize the end of the cycle. Perhaps the major currency pairs have not yet reached an inflexion point.

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According to Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin is down 4.1% over the past week, ending near $18,900. Ethereum lost 5.8% to $1290. Other leading altcoins in the top 10 showed mixed dynamics, ranging from a 3.7% decline (Cardano) to a 27% increase (XRP).

Total crypto market capitalisation, according to CoinMarketCap, declined by 2.4% over the week to $928bn. Cryptocurrency Fear & Greed Index fell by 3 points over the week to 24 ("extreme fear").

Meanwhile, the cryptocurrency market became a safe haven compared to the collapse of major currencies and stock indices.

The beginning of the week raises the question, what is behind the relative resilience of cryptos? This market could be forgotten for a while, as all the attention and capital flows are on flagship assets. Alternatively, it could manifest traders' inner confidence that peak fear is near and cryptocurrencies are already cheap enough for long-term investors.

News background
Former MicroStrategy CEO Michael Saylor said that bitcoin would surpass the $69K reached in November 2021 in the next four years. BTC could trade as high as $500K in the next decade if its market capitalisation equals that of gold. Judging by bitcoin's simple four-year moving average, its bottom is at $20K, Sailor suggested.

Bitcoin's bear market has yet to reach its final stage, and investors should prepare for further declines. Some participants expressed this opinion in a Cointelegraph poll on Twitter.

Ethereum co-founder Vitalik Buterin said all cryptocurrencies should switch to the Proof-of-Stake (PoS) algorithm. He believes that over the next 18 months, ETH will become much more scalable, which will significantly reduce transaction fees.
Ripple CEO Brad Garlinghouse disagreed with the SEC that Ethereum could be considered unregistered security after the move to PoS.

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According to Alex Kuptsikevich, a senior analyst of FxPro, last week, we said that there has not yet been a final capitulation in many markets. However, we have seen such a capitulation in the pound, which is often followed by global market reversals. We could see both the interest of long-term investors and the activation of speculators with the bet that such volatility will encourage politicians to take action.

GBPUSD was down to 1.0330 at the start of trading on Monday, although it started Friday’s trading near 1.1250, losing more than 8%. Investors were disappointed by both the Bank of England’s measured pace of rate hikes and the government’s budget initiatives announced on Friday.

As GBPUSD had already been rewriting lows since 1985, the week before, the markets quickly approached the point of a massive and poorly controlled liquidation of positions on the pound, and the reduced liquidity in trading in Asia further amplified this.

As high market volatility could further damage the economy, such currency fluctuations generate enough attention for politicians to awaken to their actions. Debt markets are now pricing in an unscheduled rate hike by the Bank of England, although the previous one was as recently as Thursday. Locally, the pound has a supporting hand from market pricing that BoE will raise Bank Rate 6% in this cycle. This is higher than in the US, and these hopes seem to fuel local buying by long-term investors.

It will take broad and proactive steps by politicians, both the Bank of England and the government, to convince markets of a trend reversal. These steps are vital, not just desirable: a weaker pound is no longer working to improve export competitiveness but is making imports more expensive and undermining financial stability.

In 1985, the so-called Plaza Accord – an agreement on coordinated currency interventions by the world’s major central banks to weaken the dollar – stopped excessive dollar strengthening. For now, however, it is in the interest of the US to continue to allow the dollar to rise, to knock down the country’s inflation and commodities prices. Therefore, in our view, at this stage, we should expect the use of market-to-market currency interventions. Britain could follow Japan’s example by supporting the pound with direct purchases.

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Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin rose 1.1% on Monday, and on Tuesday morning, it "shot up" another 5.5%, adding 7.5% over the past 24 hours. This growth momentum has brought the price of the first cryptocurrency back above $20K, in stark contrast to the dynamics of falling markets and a strengthening dollar.

Ethereum added almost as much - 7% - rising to $1,385. Against this backdrop, total crypto market capitalisation jumped 5.5% to $970 billion, with top altcoins adding between 2.3% (XRP) and 8.1% (Solana).

According to CoinShares, investments in cryptocurrencies rose for the second consecutive week last week. Net inflows were $8 mln, Bitcoin investments were up $3 mln, and Ethereum investments were up $7 mln. Investments in funds that allow shorts on bitcoin were down $5 mln, the first decline in 8 weeks.

While the Dow Jones index closed at its lowest since November 2020, the Nasdaq100 turned to growth after nearing the lows of June, and cryptocurrencies showed a strong surge. The outperformance of the riskiest assets is more typical of periods of great monetary stimulus. Therefore, the most relevant question is whether we are now seeing the first signs of a market reversal or a trap for naive bulls.

News background​

Bitcoin will continue to trade in a range of $17K to $25K, Glassnode expects. Intense US Federal Reserve monetary policy pressure and an unfavourable macroeconomic climate offset any essential positive developments in the crypto industry.

Dan Morehead, CEO of crypto hedge fund Pantera Capital, believes billions of people will use blockchain in the coming years, increasing the value of cryptocurrencies.

The SEC has demonstrated that it intends to "damage or destroy the cryptocurrency industry in the US", said LBRY, a decentralised content publishing platform.

Technology giant Apple has allowed the sale of collectable tokens (NFTs) in apps on its devices, but the commission will be 30%, sparking outrage in the crypto community.
Alex Kuptsikevich, a senior analyst of FxPro, the US dollar is under some pressure on Tuesday morning, which can be attributed to the dollar's local profit-taking after substantial gains on previous days. European equities and US index futures are also getting some relief, pulling back from lows.

However, until we see a change in the fundamentals, bounces like today's are likely to be nothing more than local retracements of established trends - bullish for the dollar and bearish for equities.

There is little doubt in the markets now that the main driving force behind the markets is the continuing tightening of current and, most notably, expected conditions. The dollar has been in increasing demand in recent months, as comments from the Fed are methodically pushing higher the expected interest rate ceiling and for longer.

Not all major central banks have the ability or the courage to maintain the same pace, which is taking the dollar's main competitors out of the game. But these same conditions require regulators to act more aggressively.

Last week, Japan began its interventions to defend the yen exchange rate. The Swiss National Bank has repeatedly warned that it is ready to intervene. Observers have also demanded action from the Bank of England. But the latter has yet to budge, taking a week to assess the situation.

In the words of the ECB officials, there is more and more evident dissatisfaction with the ongoing weakening of the euro.

Because a sharp rise in interest rates in over-leveraged economies may come as a shock, the central bank may intervene to stop the unilateral weakening of national currencies.

Right now, it seems unlikely that the major central banks would be willing to press on the dollar in a coordinated way as they did in 1985 with the secretly prepared so-called Plaza Accord. It hardly fits with US priorities to lower inflation and weaker commodity prices.

At the same time, there are increasing risks that the major central banks, one by one and acting on the situation, may use this almost forgotten instrument to stop unilateral speculation against their currencies.

In our view, since last week and for the foreseeable future, Japan has already included interventions in its active policy, potentially limiting the USDJPY from rising above 145. It is unlikely to be an easy ride for Japan's Ministry of Finance, but it has the strength to fight back.

Among the other majors, the GBP has the highest currency intervention risks right now, with EUR and CHF slightly less so. In Canada and China, the monetary authorities are not concerned about the exchange rate, as inflation is slowing down there. Hence, it is unlikely that we will see interventions in the CAD and the CNY. Although the Australian dollar has lost 6% since the beginning of the month, it is now 18% above the 2020 'bottom', so in our view, monetary authorities can use traditional rate hikes and quantitative tightening for now.

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While some berated the UK government for collapsing the Pound on the government's plans to cut taxes, others were buying the British currency. The Pound's movement on Friday and Monday looks like a classic capitulation, often a precursor of a reversal.

GBPUSD is adding for the third day, reaching 1.0960 - levels above Friday's close and over 6% above the historical low set on Monday.

Despite an extensive sell-off in the UK debt markets, the Pound has been adding. This is reminiscent of the case of the negative oil price in April 2020, after which there was no more bad news to push the price down further.

In less than a week, the Bank of England has made a complete U-turn from plans to sell assets off the balance sheet to an intention to buy them. In theory, this news should have put pressure on the Pound as it increases its market supply. In practice, stabilising the far end of the yield curve appeared to have created at least one sector in the UK market where investors could park their assets.

The US and IMF have openly criticised the UK government for plans to cut taxes and cover the short-term budget deficit through new borrowing. Interestingly, the passage of Trump's tax reforms has been characterised, among other things, by the start of the dollar's rise, which has added around 30% in less than five years.

It is also interesting to watch the dynamics of the Pound against the euro. Since 2016, EURGBP has been trading in a range of 0.83-0.93. The 18-month move from the upper to the lower bound through February marked a threefold faster climb. However, this touching of the upper boundary has now been followed by another (and even faster) pullback downwards.

Bank of England policy has become quite unorthodox, actively pushing up interest rates at the short end of the curve and down at the far end. The return to balance sheet asset purchases by the Bank of England is hardly justifiable as a capitulation, and we may see this dual policy intensify further. It is realistic that in the coming months, the Bank of England will be more active in raising the bank rate and short-term bond yields but will continue or even intensify its buying of 20–30-year securities on the balance sheet.

Such a policy would increase the attractiveness of the Pound on money markets by making it more "competitive" against the dollar while keeping long-term credit available. At the same time, tax cuts could support interest in investing in the UK.

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According to Alex Kuptsikevich, a senior analyst of FxPro, Bitcoin has remained in position for the past few days, trading at $19,500 on Friday morning. As in previous days, the attempt to sell the cryptocurrency following the stock market was met with buying.

This neat bottom-drawing by Bitcoin could show a wait-and-see stance and consolidation before the next move. However, crypto optimists are now siding with the positive momentum in gold and sector stocks. Investors have probably recalled them as a store of value amid the volatility in the currency market.

Among the closest key levels, the $20.8K where the 50-day moving average is located is worth mentioning. It has been playing an active role as resistance for more than a month. Local support is near $18.8K. A move outside this range could signal the end of the current consolidation.

News background

Billionaire Stanley Druckenmiller expects the US economy to deteriorate significantly by the end of next year. That's when cryptocurrencies could make a resurgence.

Alexander Hoptner, CEO of cryptocurrency exchange BitMEX, said he does not see any decline in institutional investor interest in the crypto industry, despite the bearish trend.

Lastly, BlackRock has launched on Euronext, an exchange-traded fund (ETF) focusing on blockchain and cryptocurrency companies.

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