Market players must get the answer to the most important question – when will the Federal Reserve’s (Fed) interest rate hikes effect on the U.S. economy. The answer to this question will affect the Fed’s rhetoric and strategy for the future. Some investors are convinced that the economy needs significant time to adjust to interest rate changes, and that will leave some room for the recession to hit in 2023. In this case, the Fed will be forced to lower interest rates to support the market. Others believe that most of the negative shocks have already been absorbed and we may expect a soft landing of the economy. If this is the case the Fed has room for further monetary tightening and will most likely keep interest rates on high levels for a long time.
It is too early to judge, but the U.S. economic situation does not look that strong now as China’s economy is reopening and Europe is seen to be avoiding a recession. This lowers the demand for the U.S. Dollar as a safe haven asset. The increase of business activity in China will not only improve global supply chains, but will also push commodity prices up, leading to a slowdown of the global economy. Thus, the appetite for risk has not yet recovered completely and may not recover in the foreseeable future. So, there are minor chances of a rally in the stock market.
The situation in the crypto market is still bearish. BTC prices may rise towards $40,000 and above only if the price anchors itself above $24,000 per coin. The existing bearish pattern in the market is signaling to weak growth which has already been seen in January. If prices go back below $19,000, it would clear the downside path towards $14,000 per coin and perhaps a further decline.
However, investors have to remember the basic market principles in times of high volatility. There are always less bears in the market than bulls, who are ready to buy out dips. So, bears have to occasionally retreat to set up bearish traps and weaken the buyers, and hamper their abilities to support prices. At such times investors have to exercise caution and not try to catch the first train, as it usually leads to losses.
We should not expect any changes to the situation without strong fundamentals. Any crypto market news now is likely to provide illusions that something is improving. Any news similar to that of the failed crypto hedge fund Alameda Research suing Voyager Digital for $446 million to recover some assets after Sam Bankman-Fried’s crypto empire collapse, would not have any effects on the market. It would simply distract from important things investors have to consider.