Crypto Struggles as Policy Tightens

by Jurica Dujmovic
By Sam Blumenfeld

If you've wanted to learn about how to pick the best cryptos to invest in — and when to invest in them — we have a three-part tutorial series that may interest you. Dr. Martin Weiss and crypto analyst Juan Villaverde's Crypto Timing Model is showing a potentially bullish chart pattern for cryptos. Click here to learn more.

  • Bitcoin (BTC, Tech/Adoption Grade "A-") is down about 1% today, as it attempts to maintain itself above $36,000.
  • Ethereum (ETH, Tech/Adoption Grade "A") is trading 2% lower, with investors trying to establish support at $2,700.
  • Bitcoin's crypto market dominance dropped 40 basis points this week to 41.8%. Bitcoin dominance peaked at 43% before falling back to within its recent range.

Cryptocurrencies, technology stocks and other risk assets sold off after the Federal Reserve's announcement on Wednesday of raising interest rates 50 basis points. While Fed Chair Jerome Powell dismissed the possibility of a 75-basis-point hike in June, the committee is still weighing additional 50-basis-point hikes in the next two meetings.

Powell's initial comments sparked a major rally before an economic reality check caused the significant pullback over the past two trading days. Monetary conditions are getting tighter, and that isn't accommodative for cryptocurrencies or tech stocks, which have traded closely together for an extended period.

Bitcoin is down about 25% from its March 28 peak, and it just closed below a previously established support level around $37,500. BTC attempted to cross its 21-day moving average near $39,500 after the initial rally, but it's struggled since then alongside the broader market.

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

 

Ethereum has consistently slid since its April 3 peak of around $3,600, but it's fighting to establish support at $2,700. ETH also sits 25% below its recent high after its attempt at closing above its 21-day moving average was rejected. Still, it's not unusual to see larger extended pullbacks within the neutral stage of the crypto market cycle.

Altcoins have largely followed Ethereum lower, but a swift change in momentum for the largest altcoin would bode well for future altcoin performance. For this to happen, Ethereum would first have to retake its 21-day moving average and jump past the psychological $3,000 landmark at the bare minimum.

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

 

Index Roundup

The crypto market struggled this week amid elevated volatility caused by expectations surrounding the Fed. This week's index price action captures the strong bump after the announcement and the following sell-off.

The Weiss 50 Crypto Index (W50) lost 7.98%, with most of the market pulling back as sentiment worsened.

 

The Weiss 50 Ex-BTC Index (W50X) slipped 7.86%, showing how Bitcoin traded in tandem with the broader market this week.

 

Breaking down this week's performance by market capitalization, we see that the largest cryptocurrencies unsurprisingly outperformed the more speculative projects.

The large-caps struggled, but they still managed to hold their value better than the smaller and midsize cryptocurrencies. The Weiss Large-Cap Crypto Index (WLC) slid 7.52%.

 

Mid-cap cryptocurrencies finished in the middle of the pack, with the Weiss Mid-Cap Crypto Index (WMC) dropping 11.24%.

 

The small-caps were the biggest underperformers, as the Weiss Small-Cap Crypto Index (WSC) fell 12.65%.

 

Unsurprisingly, the largest cryptocurrencies were the most stable during this period of weakness. Recent trading action is not unusual given the current neutral stage of the market cycle, but the next several weeks could be telling for whether the market can start regaining bullish sentiment.

Notable News, Notes & Tweets

What's Next

The crypto market will likely continue facing significant short-term challenges caused by tightening monetary policy and overreactions to establishing regulations. Higher interest rates and the incoming reduction of the Fed's 8.9 trillion balance sheet could worsen sentiment, but crypto's relentlessly surging adoption strengthens its long-term outlook.

It's unlikely that Bitcoin and other cryptocurrencies can break free from their elevated correlation with technology stocks until macroeconomic conditions are stabilized. The market wants a response that quells inflation, but that likely hurts upside over the short term.

When inflation is finally under control and the Federal Reserve is able to take a more hands-off approach, cryptocurrencies should show their tremendous upside.

Best,

Sam

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