The Crypto
market situation has not changed much over the last week after a brief spike of
Bitcoin prices over $30,000 per coin has been seen to be a false upside move.
BTC prices are expected to continue down to $22,000 once as they cross the $27,000
support level. Altcoins will follow. Trading volumes in April dropped
dramatically after elevated trading activity during the first three months of
2023. Thus, any large trades may affect the market severely.
The U.S.
Dollar index (DXY) has rolled back amid new banking crisis worries and fears of
a possible nearing recession. This should eventually lead the Federal Reserve
(Fed) to reject its “high for longer” interest rates policy and return to
quantitative easing to support the economy. But are things really that bad in
the United States? It doesn’t seem that way. JPMorgan has acquired most of the
deposits of First Republic Bank during the deal conducted by the U.S.
regulators in order to avoid a new wave of turbulence in the banking sector.
The battle over the U.S. debt ceiling, which has to be raised by June 1 to
avoid technical default, is seen to be mostly a yearly show, and should not be
considered as a real threat to markets. In other words, all these negative
developments have been priced in to the Dollar exchange rate, while strong
economic data and the Fed’s pledge to battle inflation may lead to a recovery
in DXY.
The
importance of the Dollar to the crypto market should not be underestimated. The
recovery of the Greenback will have severe consequences for all risky assets,
including cryptos. The traditional financial segment has a direct link to the
crypto market and must not be ignored by crypto traders. Digital assets are not
something that is out of the world of traditional finance despite the fact that
it has some unique features like “whales” that have a strong influence on
market prices. However, the crypto market runs on borrowed fiat money and is
not isolated from the rest of the financial world.
Every word
of the Chairman of the Fed, Jerome Powell, matters to the crypto traders too.
If he will speculate about future perspectives of interest rate hikes without
the Fed doing so right away traders will consider it as a strong buy signal and
this will increase risk tolerance. This will lead to rising inflation, which is
not something Powell and Co are really aiming for. Any gestures towards possible
interest rate cuts will lead to the same direction. This is well understood by
the Fed that is not eager to waist all the work it has done to bring inflation
down. Thus, any optimistic crypto addicts should alter their thinking about an
upcoming recovery of BTC above $30,000 per coin and further highs. The Dollar
has only a few Jokers that could surprise the market.