In the last couple of months, Bitcoin and most major altcoins have been recovering from their 2022 bottoms, closely following the positive performance of stocks amid signs of inflation easing in the US. Nevertheless, this relief rally paused after the latest FOMC minutes provided no concrete signals around what’s next in the normalization cycle, leaving risky assets adrift. Hence, is this a temporary retracement or are crypto markets on the verge of a new decline?
It’s all about the Fed
In 2022, the myth that cryptocurrencies are not correlated with traditional assets because they are not backed by macroeconomic factors has been shuttered. In reality, cryptos have been acting as stocks on steroids, tracking tech stocks’ performance but with higher volatility. Thus, the main driving force behind them continues to be the magnitude and pace of the Fed’s monetary tightening.
Last week, cryptos got a significant boost due to the softer than expected US CPI reading that increased market expectations that the Fed could scale down its aggressive approach later in the year. In contrast, after the Fed’s recent statements that it would resume with its series of rate hikes as there is a long way till inflation is back under control, major coins drifted lower. Therefore, cryptos could potentially escape their recent peaks and edge higher if broader macroeconomic indicators start pointing towards inflation cooling off.
Big names endorse adoption
Even though crypto markets have experienced a major downfall this year, with Bitcoin losing almost 70% of its peak value, many leading companies in the world have increased their investments on the broader crypto space. According to a new report from Blockdata, in the last nine months, Alphabet has invested $1.5 billion in several crypto projects, mostly focusing on four blockchain firms. Moreover, the South Korean electronics giant Samsung has also funded 13 crypto-related companies, spending more than $1 billion.
In other news, BlackRock, the world’s largest asset management company, announced the launch of a spot private trust, which would allow the increasing number of institutional investors interested in cryptos to step into the market. The fund stated that this investment vehicle was created to cover the needs of clients who seek exposure to cryptos but lack the knowledge and competency to efficiently manage the operational life cycle of these assets.
ECB to implement stricter rules
On Wednesday, the ECB announced that it plans to introduce new regulatory guidelines under which banks that offer crypto assets would need to have the necessary capital and expertise to withstand potential downturns or even a severe crisis in the crypto space. Furthermore, the ECB aims to harmonise different national rules that are applied by each EU country so that crypto companies operating in Europe comply with a specific and unique framework.
Bitcoin pauses rebound
Even though Bitcoin has managed to faintly rebound from its 2022 lows, it is currently experiencing a downside correction after failing to cross above the $25,200 mark.
To the downside, the 50-day simple moving average (SMA), currently at $22,220, could act as the first line of defence. Diving beneath that region, the attention could shift to $20,670.
Alternatively, if buyers re-emerge and push the price higher, initial resistance could be encountered at the recent rejection point of $25,200. Any further upside moves might then stall at $27,950
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