Jerome Powell’s gloomy comments cause the cryptocurrency market to shift

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  • The Fed is committed to keeping its end rate at 5.1% (median) until 2023. After that, in 2024, it will think about cutting it.
  • The Consumer Price Index numbers, which came in at 7.1%, were also released by the US Bureau of Labor Statistics.
  • The expected forecast was 7.3%, which made the markets, including Bitcoin, go up. The BTC/USD reached a high of more than $18,000 early in the week.
  • Chairman of the US Federal Reserve Jerome Powell announced another rate hike of 50 basis points, which caused the crypto markets to turn red.
  • The declines continued into Friday, when the price of BTC fell below $17,000 during the day.
  • Over the past week, Ethereum hasn’t been able to break through the key resistance level around $1,350. Since then, bears have taken control, which has caused a loss of about 5.0%.

The market capitalization of cryptocurrencies dropped below $900 billion as BTC lost $18,000 in response to the Fed’s 50 bps rate hike. The most recent cryptocurrency rally was put to an end by the US Federal Reserve’s decision to raise interest rates by 50 basis points. Bitcoin’s price fell below $18,000 as the market as a whole suffered losses. The Consumer Price Index figures, which are used to determine the country’s inflation rates, were released by the US Bureau of Labor Statistics on December 13th. The result for November was 7.1%, which was less than the anticipated 7.3%. Naturally, this increased the market, and shortly after, the price of BTC soared to over $18K.

Jerome Powell, the Fed chairman, announced a 50 basis point increase in interest rates during yesterday’s FOMC meeting, but this had the exact opposite effect on the price. As can be seen in the above chart, BTC’s price rose to a high of about $18,387 during the day (on Binance), but it was unable to maintain the rally and is now trading belowt $17,000.

Source: Tradingview

The market as a whole is in the red, but it seems that altcoins are suffering more than Bitcoin. The dominance of BTC is evidence of this. It significantly increased over the past week, showing the growing market share of BTC in comparison to other cryptocurrency.

Market Value to Realized Value Ratio (MVRV)

The ratio between Bitcoin’s market cap and its realised cap is measured by the “MVRV ratio,” an indicator. The “realised cap” in this instance refers to a BTC capitalization model where the value of each coin in circulation is determined by the most recent purchase or sale price. The value of Bitcoin is obtained by adding up each of these values for the entire supply. In this bear, 0.74 is the lowest point at which the MVRV ratio has fallen. Contrary to the standard market cap, which values each coin at its current Bitcoin price, this is not the case. Because it takes into account each market participant’s cost-basis, the realised cap serves as a kind of “real value” for the cryptocurrency. This is why it is useful.

As a result, comparing the two caps—which is what the MVRV ratio does—allows us to determine whether the current value of BTC is undervalued or overvalued. The chart below displays the trend in the Bitcoin MVRV ratio over the past few years:

Source: Cryptoquant

In recent months, the Bitcoin MVRV ratio has been below 1, which indicates that the market cap has been lower than the realised cap. Previous bear market bottoms in the price of cryptocurrencies were observed in the region under 1. On the other hand, tops have been seen when the ratio is greater than 3.7.

Concluding Thoughts:

Investors should be aware that pressure on crypto will continue as we head into 2023 due to the current macro environment, a lack of regulation and confidence in cryptocurrencies, and unclear regulatory frameworks. Although these problems are serious and will be difficult to resolve, blockchain innovation and progress are still expanding, and the technology’s use cases are still being adopted.

In 2022, there was a severe bear market for bitcoin and the larger crypto ecosystem. The price of bitcoin has shown price sensitivity to interest rate increases and has been traded like a risk asset over the previous year. Consumers in developed markets will likely perceive Bitcoin as a long-term store of value and a protection against M2 inflation rather than overt CPI inflation, in our opinion. Remittances and unbiased alternatives to dollar hegemony are more the focus in emerging markets. These policies would probably be reversed, at least in part, and Bitcoin mining would become more acceptable in political circles.

On the other hand, the war is also fostering a more economically integrated Eurasia with incentives to adopt cutting-edge payment methods for cross-border trade, as Russia and China are doing with the digital RMB and potential gold-for-oil swaps. In the face of declining inflation and ongoing government budget deficits, the Federal Reserve would probably hold off on raising interest rates. Under the aforementioned scenario, just a dearth of negative cryptocurrency-related news could push the price of Bitcoin back up to $20K.

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