Macroeconomics and the Shifting Tides of Cryptocurrency
- Bitcoin (BTC, Tech/Adoption Grade “A-”) is holding steady near the $44,000 level.
- Ethereum (ETH, Tech/Adoption Grade “A”) is testing a major area of resistance that could determine the sustainability of the current rally.
Wow! In the last 24 hours, we’ve gotten two headlines that may already be in contention for macro story of the year for the crypto markets:
The first headline covers one of the largest crypto hacks ever recovered. Now, there are somewhere between 100,000 and 120,000 Bitcoins set to be redistributed to the victims of the 2016 hack.
That’s a lot of Bitcoin — certainly enough to impact the market if reimbursement is handled poorly.
For now, the market doesn’t seem to be too worried. But this is certainly a story we’ll be keeping our eyes on.
The second headline about Russia’s new stance on crypto is more predictable, though it may not appear so on the surface. After all, Russia was considering banning Bitcoin mining just a few weeks ago. To now consider it legitimate currency seems an extreme about-face.
But we’ve noted that increased pressure on Russia due to the Ukraine situation could lead Russian leaders to the logical conclusion that cryptocurrencies can’t be sanctioned like rubles. It makes sense that Russia would explore cryptos as a measure to mitigate effects of potential future sanctions.
We fully expect Russia to embrace crypto wholeheartedly as it could provide the country with a multitude of economic benefits.
Beyond adding to crypto’s growing adoption on its own, Russia’s embrace of and investments into crypto will put pressure on the U.S. and China to take advantage of this burgeoning asset class more. It’ll be interesting to see how those two countries respond. Although ironically — after seizing the hacked Bitfinex Bitcoins — the U.S. is one of the largest Bitcoin holders in the world.
Bitcoin’s price was not significantly affected by either of these headlines as of right now. But it’s still showing strength, holding firm at the $44,000 level. That’s 30% from its Jan. 24 low.
Still, Bitcoin has struggled to climb above the stiff resistance at $45,000. Past there, it’ll likely experience more headwinds in the $48,000 – $50,000 area.
Until Bitcoin can sustain a rally above those levels, there’s still a chance that this rally will be short-lived, leaving the possibility of a retest of the Jan. 24 lows still on the table.
Here’s BTC in U.S. dollar terms via Coinbase Global (Nasdaq: COIN):
Ethereum is up a staggering 48% from its Jan. 24 lows and is also facing off against resistance in the area we highlighted last week: between $3,000 and $3,400. ETH is currently smack in the middle of that range — near the $3,200 level. If it can manage to stay at or above these levels over the next few days, it just might build up enough momentum to overcome the resistance.
Remember, when ETH can climb without BTC leading, the door is opened for other altcoins to move as well. If ETH can continue to outperform, we’ll look to the altcoins for some swing trading opportunities.
Here’s ETH in U.S. dollar terms via Coinbase:
Notable News, Notes and Tweets:
- Russia has now announced that it will recognize Bitcoin and other cryptocurrencies as currencies.
- Yesterday the US DOJ seized and recovered some $3.6 billion dollars in crypto from the 2016 Bitfinex hack. This is one of the two hackers.
- Messari CEO and co-founder Ryan Selkis went on “Tucker Carlson Tonight” to talk about crypto politics.
What’s Next
That last linked segment is important and highlights one of the current undertones in the crypto sphere: Crypto is getting political, and fast.
Other countries have made major strides in crypto adoption. Obviously, El Salvador was the first to act by making Bitcoin legal tender. Other smaller nation states have taken notice and are working to mimic those actions.
Russia is now making moves to undermine U.S. sanctions by embracing the local crypto economy and even accepting crypto as currency. It won’t be much longer until they announce BTC on their national reserves and even accept Bitcoin as payment for oil.
Don’t underestimate the impacts those actions will have.
Yet at the same time the U.S. government has yet to take any real steps toward helping its own crypto economy … nor has it added Bitcoin to any federal reserves. In fact, U.S. regulators and politicians seem to be behind the curve on crypto adoption, crypto regulation and even more basic questions like: What is Bitcoin, and what is crypto?
The U.S. seems to still see Bitcoin as a hostile threat, a weapon, rather than a tool that can be used for good.
That mind-set has to shift … the sooner the better.
Best,
Alex
