A Possible Crypto Recovery Moving into New Year, Risk-on Sentiments Send Stock Market to Record Highs

Bitcoin and Ether continue to struggle as they trade around $48k and $3,800 respectively on Friday.

The leading cryptocurrency is now testing a key technical level that has been acting as a floor for Bitcoin over the past two years.

The latest drop in the largest crypto asset’s price has taken it to its 55-week moving average, a decisive break below which would take it to as low as $40,000.

According to Katie Stockton of Fairlead Strategies, a research firm focused on technical analysis, Bitcoin has notched a new short-term buy signal and suggests a two-week rebound. However, it is “low-conviction” due to another measure as per which conditions aren’t oversold, she said.

While crypto is struggling at the end of the year, the stock market hit a new all-time high driven by improved sentiments as governments resist imposing new, widespread lockdowns, even as the new coronavirus variant, Omicron, surges.

The risk-mood sent Wall Street’s main indexes to end the year with their sharpest three-year surge since 1999. The S&P 500 had its 69th record close of the year as it made a new high and is up 28.8% in 2021.

The Dow Jones Industrial Average also closed at all-time highs, rising for a sixth session and up 19% in 2021. The tech-heavy Nasdaq is also up 23% this year and recorded 98 new highs.

As a result, the dollar has also fallen at the low end of its recent ranges as investors favor riskier assets. The benchmark 10-year yields meanwhile reached 1.56%, the highest since late last month after the Treasury sold $56 billion in seven-year notes to weak demand. All eyes are now on the impending US interest rate hikes.

The stock market is currently enjoying the “Santa Claus Rally” that typically occurs in the last five trading days of the year and the first two of the new year. As the crypto market failed to have a “Santa Claus Rally,” investors and traders are now waiting for the rally that comes in the first ten days of a year.

This year “has seen crypto and blockchain mass adoption increase significantly with a large influx of institutional investments that has renewed confidence in this sector,” said Walid Koudmani, an analyst at XTB Market. That “could ultimately lead to significant price gains and increased volatility as retail investors attempt to catch up,” he added.

The crypto market is currently expecting 2022 to be a positive year for Bitcoin and the majority is further not expecting a repeat of the 2018 bear market.

“We can expect relief moving into the new year and a possible recovery drive,” said Joe DiPasquale, CEO of BitBull Capital. “$100,000 is definitely on the charts, but the timing can vary, especially as macro economic policy shifts and regulations start to emerge in the year,” he added.

While the major crypto assets, Bitcoin and Ether, are struggling to rally, altcoins have shone brightly this year with massive gains. Retail investors are likely distracted by these rallies in alternative coins.

“That puts some pressure on Bitcoin as well,” said Rosh Singh, CEO, and founder of Quadency, in an interview. Still, “a lot of people in crypto are pretty optimistic about the next year and think we should see a rally with the way that things have been going,” he added.

Despite the ongoing weakness in the price action, MicroStrategy purchased another $94 million worth of Bitcoin in December. The coin is down 17.5% in the last month of 2021 but still up 62% this year.

The business intelligence company bought 1,914 BTC this time and now owns a total of 124,000 Bitcoin, acquired at an aggregate price of $3.75 billion.

This month, CEO Michael Saylor said on the company’s investor day call with shareholders that they are now looking for ways to generate yields on its Bitcoin stash by either “putting a lien on it” or a “mortgage against it.”

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Author: AnTy

Accelerated Tapering Priced In, But What Does it Mean for Bitcoin Going Forward?

Bitcoin continues to trade around $48k and Ether under $4k as the market eagerly awaits the Federal Reserve’s meeting to wrap up on Wednesday.

The market is preparing for a hawkish central bank, expecting it to accelerate its tapering of asset purchases, a reduction in stimulus, that would allow the officials to begin lifting rates next year. The stimulus efforts have been underway for more than a year and are now started to get wound down as economies recover from the pandemic.

According to trader and economist Alex Kruger, there has been a major change within the Fed with their focus shifted from reducing unemployment to reducing inflation.

“This shift translates into a Fed more likely to raise interest rates sooner and faster. Financial markets have been pricing this hawkishness, with many risk assets correcting lower and the yield curve flattening.”

Now, the big question is, what will the central bank communicate today at its last FOMC meeting of 2021.

In Kruger’s view, “accelerated tapering delivered yet mostly priced in,” adding, “Tapering is secondary, what matters is expectations on the path of future rates.”

Given there has already been a sell-off going on since last week, the hawkish move is already priced in and is not likely to have a negative impact on prices.

Bitcoin is currently down about 30% from its all-time high of $69,000 last month, while Ether is 20%. Meanwhile, the overall crypto market cap is just above $2.3 trillion, down from above $3 trillion early last month.

With derisking in anticipation of the hawkish Fed also extensive, crypto having experienced a 20% to 50% crash already in December, many have already panic sold their crypto assets.

“Therefore, if the Fed were to deliver accelerated taper, signal two hikes for 2022, and nothing else, I would expect a rally across asset classes,” added Kruger.

But still, if Fed Chairman Jerome Powell goes even more hawkish than expected, the market could easily get blasted with fighting inflation, becoming the number one political priority right now.

To Cathie Wood, CEO, and co-founder of Ark Invest, the issue is deflation and not inflation, and it will be the most significant risk for the economy and financial markets in the year ahead.

“We feel like we’re experiencing the same kind of naysaying right now” as when the fund previously made large bets on Bitcoin and Tesla before their marvelous rally, Wood said. “Our confidence in our strategy has increased” despite the losses recorded for the year to date, she added.

For now, the worst-case scenario is a replay of December 2018, when the Fed crashed the market. “For BTC, that would take the price to $42K, which should be defended,” Kruger said, adding, “Whatever ends up happening, expect tomorrow’s close to determine the trend into year end.”

Galaxy Digital’s Mike Novogratz is of a similar opinion as he said $42,000 is an important level and that the low 40s should hold. But he isn’t worried about the prices in the short term. Novogratz in an interview said,

“So much money is pouring into the space, it would make no sense that the crypto prices would go much below that.”

“If you’re long, it feels painful, but it’s probably healthy.”

He further expects 2022 to be the year of DeFi which “got unloved” this year due to issues related to KYC policies that hurt its prospects for institutional adoption.

While we will see a lot of volatility in the short term, Noelle Acheson, head of market insights at Genesis Global, expects Bitcoin “to start to find its place in portfolios going forward” because the crypto asset is not linked to the economy in any way.

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Author: AnTy