The price of bitcoin (BTC) has increased 87% so far this year and appears to have found stability around $30,000. Ether (ETH) has increased by 64%, which is less than BTC but still impressive. You are reading Crypto Long & Short, a newsletter for professional investors that provides insights, news, and analysis. Both have mostly ignored this dangerous time for the crypto industry as a whole. This is demonstrated using the Anchored Volume Weighted Average Price (AVWAP) of BTC. Will macroeconomic stories fade away? The solution may eventually be a little complicated. Although macro forces will always be present, several major problems have been developing in a fairly predictable way, particularly when it comes to inflation.
The possible crash outcome of market
Since the SEC filed litigation against Binance and Coinbase, Bitcoin’s AVWAP is 9.1% less than where BTC is currently traded. The AVWAP calculated from November 9, 2022, when Binance decided against its planned takeover of FTX, is $22,632. An AVWAP of $21,400 is indicated by anchoring from the month of June 2022, when Celsius ceased withdrawals.In other words, after a string of unfortunate incidents, bitcoin has recovered. BlackRock’s recent application for an exchange-traded fund for bitcoin appears to be the most recent industry driver. What might possibly go wrong, is the current query. What macroeconomic changes might cause prices to decline and undo the aforementioned gains?
Reading over some of the Federal Reserve Chairman Jerome Powell’s more recent statements suggests that the FOMC is content to stick with its current course of action. The market seems to anticipate at least two additional rate increases in 2023, with a maximum increase of 5.6%. It’s tough to envision a substantial shock to pricing in either direction if that happens; it’s probably already included in.The failure of Silicon Valley Bank and Silvergate Bank was one of the most significant news items of the year. The news spread quickly across the industry since both were connected to cryptocurrencies. Their failure led people to believe that the FOMC’s increase in rates were pushing things too far and were stressing out banks too much.
In contrast, recent stress tests on 23 systemically significant banks revealed they appeared to be in a strong position to survive a severe downturn and continue making loans to qualifying consumers. The test used 10% unemployment, a 40% drop in commercial property values, and a 38% drop in dwelling prices.Despite the potential impact, the FOMC may believe it has enough leeway to raise rates quickly. Even though a future economic downturn would be painful, it is likely that it would reduce inflation without wrecking the banking system. Recurrent debt is at record levels. Although it doesn’t receive much attention, this topic is nonetheless important.
The retail sector of cryptocurrency investing is still very important. According to coin data data, 1.3 million BTC are held by investors. These are those who possess less than one bitcoin. While this number has increased by 73% since 2021. In terms of investing in cryptocurrencies, I’m concerned about rising credit balances coupled with higher interest rates and possibly declining jobs.In the past, recessions frequently followed inversions. The most current assessment of economic estimates from the FOMC, however, doesn’t seem to be predicting a recession. However, this discrepancy between past economic performance and forecast suggests a level of uncertainty that markets may not have factored in.What if the decision is wrong as a trader with a bullish bias. I doubt I’m by myself. More investors may become hesitant to invest in crypto assets as a result of this question.
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