- The modest rise in Bitcoin and Stocks in the cryptocurrency sector, including Coinbase (COIN), have surged dramatically higher since Monday.
- Over the previous five days, Ether’s momentum has increased.
- LDO, the governance token of the Lido decentralized autonomous organization, Lido DAO, has been rallying for the past few days.
- SOL recently increased by more than 18%, breaking through the $14 resistance over the weekend to trade at prices last seen in November, and is currently trading around $16 on Monday.
- The price increase happened as Solana’s daily active users increased by over 40% over the previous two weeks.
- Equities ended mixed as traders navigated a busy week that included the release of consumer price index (CPI) inflation data and the beginning of the fourth-quarter earnings report season.
For cryptocurrency investors who have placed long bets on the assets, the decline in inflation expectations is a positive development. The anticipated 5% price increase is roughly in line with what senior Federal Reserve officials anticipate for interest rate levels in 2023. Inflation will be slowed by the smaller gap between price increases and rate levels. For comparison, the federal fund’s target rate at the time ranged from 0.25% to 0.50%, and the inflation rate in March 2022 was 8.5%. The sooner markets start to anticipate a shift away from monetary tightening, which could have an impact on price momentum for both bitcoin and ether, the sooner the gap between inflation and the federal funds rate narrows.
In a short period of time, the trends of low volatility and declining volume have returned. Although this might be a sign that the market is about to take another leg downward, it’s more likely a sign of a complacent and depleted market that few players want to enter. There was an uncharacteristically low period of volatility even during the capitulation period in November 2022. Most market pain occasionally comes from having to wait for a definite trend change. The pain is coming from the price of Bitcoin because the market hasn’t yet experienced the kind of explosion in volatility that has historically marked market pivots and significant directional shifts.
Following the collapse of FTX (FTT-USD) and Alameda, the depth and liquidity of the market as a whole have also significantly decreased. Their demise created a sizable liquidity gap that hasn’t been filled yet because there aren’t any market makers operating in the area right now. Since the entire industry has been crushed over the past few months, Bitcoin remains by far the most liquid market of any other cryptocurrency or “token,” but still making it relatively less liquid than other capital markets.
The age-old inflation/deflation debate has been kickstarted with the upcoming release of the CPI data on Thursday, January 12. Most people are starting to realize that inflation is declining at this point. In the near future, there may even be some degree of deflation, which would be favorable for risky assets like Bitcoin (BTC-USD). We expect to Bitcoin perform better during a deflation. Even if Bitcoin can bottom out and rally soon, we can still anticipate a turbulent year because it depends on what the Fed does. As a result, even if inflation spikes again toward the end of the year, this is something to be prepared for. We are leaving behind a historically bad year for stocks and bonds and are cautiously optimistic about 2023. Many financial assets are now much more attractively valued as a result of lower prices, but if we assume that a recession is very likely, they might not be as undervalued. Moving forward will be heavily reliant on whatever happens with the Federal Reserve. The most recent Fed minutes remained hawkish in nature. Since employment is still strong, the Fed isn’t looking to change course just yet. However, if inflation falls and we experience a recession, the Fed may change course. Although a recession may take some time to materialize, lower inflation seems quite likely.