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Crypto Week: How Long Will Positive Sentiment Rule the Market?

The crypto market went through a sudden rally. On Friday, short positions for $640 million were closed and most of the explanations for these actions, however, do not stand up to any criticism. Some “analysts” insist that FTX founders found $5 billion in assets to pay the affected clients of the failed crypto exchange. However, these funds are in tokens like FTT and SOL which lost almost 100% of their prices during the recent market correction. So, these “assets” will not compensate the damage.

The other explanation is that the OpenAI project could have a market cap of $29 billion – according to some unconfirmed estimates - which may push other tokens that are somehow related to artificial intelligence (AI). This is a very dubious assertion considering the mixed reputation of project technology and no ground-breaking ideas behind other AI DeFi projects.

Controversial assessment of the slowing down of inflation figures in the United States among crypto influencers on Twitter, led to false judgement that the current rally in the crypto market is of a speculative nature. This managed to cause cryptocurrencies to be pumped into the market over the weekend to collect short positions.

However, the true nature of this unexpected rally is more complex as the rally is affecting the stock market too. That may signal that large investors are trying to play the card of global economic recovery and a possible swift reversal of the monetary policy be the Federal Reserve (Fed). China, which is lifting its tight COVID restrictions, recently reported its multi decade low Gross Domestic Product (GDP) growth while also encouraged investors with its stronger than expected figures of GDP for the last quarter. Investors believe China will become a global recovery engine in 2023 that will pull the global economy out of the upcoming recession. This could be particularly true for European countries that are highly dependent on exports to China.

The main question is how long will this positive sentiment rule the market. Positive expectations and the real positive changes in the economy are completely different things. Investors may expect lower Fed fund rates and bet on the capital inflows to Europe, but the fact is that the Fed has not demonstrating any intentions to lower its interest rates so far. Thus, low risk assets, including bonds, could continue to attract more investments. Investors are more inclined to secure their capital in low-risk Intel bonds that give 6% yield, or other corporate bonds that deliver even bigger returns, and not put their capital into high-risk stocks or cryptos. Thus, a further slide of crypto asset prices are likely. The target for BTC at $10,000 per coin is intact.