Market deep dive: Another slow week for the crypto market in need of a catalyst

Crypto markets have been sluggish this week. The only two major cryptocurrencies (market cap > 10bn$) in positive territory over the past seven days are NEAR and SHIB. The latter profited from its addition to the trading platform Robinhood.

Bitcoin 2022 and Solana Miami ended last week, and left a bitter aftertaste: many in the industry were disappointed as there were no breaking news. Unlike last year when El Salvador announced it would accept bitcoin as legal tender.

Headlines this week were dominated by inflation and pressure on bond prices. US inflation came out slightly hotter than expected with 1.2% MoM and 8.5% YoY in March: the highest reading in more than 40 years. As a consequence, the FED finally moved away from its “inflation is transitory” stance, and the market is now pricing in a 50bps rate hike for both May and June with high probability. Core inflation (e.g. food and energy) was slightly lower than expected at 0.3% MoM and 6.5% YoY, and might have helped to stabilise the market.

Other central banks are following the FED with 50bps rate hikes, incl. the Reserve Bank of New Zealand and the Bank of Canada just yesterday. The European Central Bank’s decision on rates is scheduled for today in the afternoon, but there is no expectation of a change in interest rates.

Any news of higher than expected inflation or hawkish statements from central bank officials are pushing risk-on assets lower. For growth stocks, the link between higher rates and the valuation of future cash flows is clear. For cryptocurrencies, the relation between rates and prices is not as straightforward. What can be observed from the recent past is that they behave more and more alike in terms of the 30-day correlation between BTC$ and the NASDAQ marking an all-time high at 0.77.

As of writing, BTC$ is consolidating around the 39-41k level as is ETH$ at around 3-3.1k. The crypto market seems to be in a waiting position. News surrounding the Ethereum merge might serve as the needed catalyst to break out from current levels. Hopefully to the upside.

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