Crypto Retreats After Fed Rate Hike

by Jurica Dujmovic
By Sam Blumenfeld

At the Federal Open Market Committee meeting on Wednesday, the Federal Reserve decided to slow down and settle on a 50-basis-point rate hike after four consecutive 75 bps increases.

While a lower rate hike was priced in, instead of having a neutral reaction, Bitcoin (BTC, Tech/Adoption Grade “A-”) and the broader crypto market pulled back.

This could perhaps be attributed to the Fed’s call for a 5.1% terminal rate — or peak interest rate — which was unwelcome news. Fed Chair Jerome Powell made matters worse by blaming inflation on the strong labor market.

Now, investors fear weakening the labor market will create a deeper recession.

Today, Bitcoin is down about 2% after slipping below $17,000.

On the bright side, it’s holding up better than most altcoins. BTC is even over the past month and is down just 2% weekly in part because of the uptick from a favorable November inflation report.

Bitcoin is currently sitting slightly below its 21-day moving average, but that level is much less important than its established bear market low of $15,500.

Dropping to a new bear market low would hurt market sentiment and extend crypto winter further. If Bitcoin continues trading inside of its established range between $15,500 and $25,000, its direction is neutral.

Here’s Bitcoin’s price in U.S. dollars via Coinbase Global (COIN):

Click here to see full-sized image.

 

After an extended period of looking stronger than BTC, Ethereum (ETH, Tech/Adoption Grade “B”) has suffered a bit more than the market leader during this pullback.

ETH is down about 5% today as it hovers slightly above $1,200. Still, Ethereum is up 20% over the past six months while Bitcoin is down 11%.

The second-largest crypto by market cap has struggled over the past three days. But it’s still relatively close to its pre-FTX levels from October.

Resilient trading from ETH would likely help altcoins that follow its direction.

Ethereum fell below its 21-day moving average of $1,260, but the asset has plenty of leeway before it’s in danger of establishing a new bear market low.

The important level to watch is $880. However, it would most likely take a severe market correction to get there.

Here’s Ethereum’s price in U.S. dollars via Coinbase:

Click here to see full-sized image.

 

Notable News, Notes and Ratings

•   Eight cryptocurrencies currently have an overall Weiss ratings of “B” or higher, indicating that these are “Buys.” They are ...

1. Bitcoin (BTC, Overall Grade “B+”)

2. Chainlink (LINK, Overall Grade “B”)

3. Polygon (MATIC, Overall Grade “B”) 

4. Cardano (ADA, Overall Grade “B-”)

5. Ethereum (ETH, Overall Grade “B-”) 

6. Global Utility Token (OKB, Overall Grade “B-”)

7. LiteCoin (LTC, Overall Grade “B-”)

8. Uniswap (UNI, Overall Grade “B-”)

•   Incoming House Financial Services Committee Chair Patrick McHenry asked Treasury Secretary Janet Yellen to delay the implementation of crypto tax provisions from the infrastructure package until greater regulatory clarity exists.

•   Grayscale Bitcoin Trust (GBTC) currently trades at a 48% discount to its net asset value, meaning investors can invest in Bitcoin indirectly for nearly half off through the vehicle. Grayscale Ethereum Trust (ETHE) trades at an even steeper 54% discount.

Both are at or near historical highs while crypto sentiment is low.

•   The new chair of the U.K.’s Financial Conduct Authority criticized crypto before calling for more regulations in the space. Ashley Alder, the incoming FCA chair, claimed crypto companies were “deliberately evasive” and suggested money laundering in the space.

•   Hong Kong crypto futures exchange-traded funds have collectively brought in $73.5 million before their listings on Dec. 16. The CSOP Bitcoin Futures ETF collected $53.8 million, while the CSOP Ether Futures ETF raised $19.7 million.

What’s Next

Investors were hopeful that the Fed would slow down after November’s Consumer Price Index data came in at 7.1% on Tuesday, but the favorable reading did little to sway Fed committee members.

With rate cuts no longer expected in 2023, we expect a more difficult macroeconomic environment for crypto prices.

However, a lot could change next year. The Fed could look to cut rates if inflation cools quicker than expected or the labor market weakens to the point where it becomes a priority.

Crypto sentiment has worsened as the market weighs collateral damage from FTX and the call for tighter regulations.

Now, another dark cloud looms over the market as rumors circulate that Binance, the world’s largest crypto exchange, could be insolvent.

This is purely speculation right now, but if Binance fails, it would likely cause cascading damages.

Regardless, crypto’s fundamentals continue improving. Crypto winter may extend for a while as the market fights negative headlines, but its future looks increasingly bright with greater adoption.

Best,

Sam

P.S. — Chris Coney, editor of our Crypto Yield Hunter, has slipped on his educator hat to demystify the word of decentralized finance.

In his 2023 DeFi Superyield Webinar, he explains how he’s been using DeFI to find impressive opportunities to go for yields of 9% using just stablecoins and 44% using stablecoins and price-variable coins … all while other investors sit on their hands and wait for a better market.

The full webinar is available to watch for FREE. I suggest do so sooner rather than later.

About the Investment Analyst

Sam graduated from The Weiss School, interned at Weiss Research while attending Babson College, and now dedicates his time at Weiss Ratings to in-depth analysis of natural resource stocks and cryptocurrency markets. He regularly contributes to the research and news posted daily to the Weiss website.

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