Bitcoin (BTC)
The collapse of FTX, the third largest cryptocurrency exchange in the world, caused Bitcoin to plunge below $ 16,000, the lowest level since November 2020. This sale increased the scope of the BTC depreciation that has lasted for a year to over USD 53,000, i.e., over 77%.
All this meant that even a year ago, you had to pay $ 69,000 for one Bitcoin; today, it costs about $ 16,000.
However, one can estimate that if it weren't for the confusion around the FTX exchange, Bitcoin would cost much more today. This is evidenced mainly by the market reaction to the consumer inflation (CPI) report in the United States published last Thursday. This report shed an entirely new light on the further tightening of the Fed's monetary policy, which contributed to the sudden increase in the BTC rate during Thursday's trading by over 10%.
We learned from this report that the price growth dynamics in the US continued to slow down and that its slowdown suddenly accelerated significantly.
Over the past few months, we have observed a decline in consumer inflation (CPI) in the United States by 0.6 percentage points from 9.1% in June this year up to 8.5 per cent in July, by 0.2 percentage point up to 8.3 per cent in August and by 0.1 percentage point up to 8.2 per cent in September.
Thus, one can see that after the first substantial decline of 0.6 percentage points, in the following months, the slowdown in price growth slowed down significantly to 0.2 percentage points and further 0.1 percentage points.
Unexpectedly, in October this year, however, inflation fell by as much as 0.5 percentage points to 7.7%, which turned out to be a much better result than expected. Economists forecasted a decline in the CPI by only 0.2 percentage points up to 8.0 per cent.
At the same time, there was also a decline in core inflation reflecting the change in consumer prices, excluding food and energy prices, by 0.3 percentage point up to 0.3 per cent from 0.6 per cent before a month. This reading also turned out to be better than the expectations assuming a decline of only 0.1 percentage point Up to 0.5 per cent.
It is noteworthy that while the full CPI (blue line in the chart below) was the fourth consecutive decline, the upward trend was just broken in the case of core inflation (red line in the chart below).
Considering that the highest consumer inflation in over 40 years was the primary catalyst observed since March this year's cycle of monetary policy tightening, the decline in price growth may induce the Federal Reserve to reduce the scale of further tightening.
Such a scenario became the baseline scenario almost immediately. The inflation report made up to 80.6 per cent Probability increased that after four in a row rate hikes by 75 bp, the Fed will decide during the December meeting to raise the federal funds rate by only 50 bp.
Even before the publication of the report on CPI inflation in the US, the probability of such a move was estimated at only 52% and 48%. Chances were given for the fifth consecutive 75bp rate hike. Currently, such a scenario is valued at only 19.4%
You can see that the report published last Thursday increased expectations about the Fed's pivot, i.e., a change in the attitude of the American central bank to further moves in interest rates.
A sharp increase in the chances of a federal funds rate hike by only 50 bp. However, during the December Fed meeting, other changes took place after publishing the report on consumer inflation in the US.
Until recently, investors expected that the Fed would decide to raise interest rates two in a row. 50 bps each during the meetings scheduled for December this year and February next year, and one hike by 25 bp. During the March meeting.
As a result, the federal funds rate was to rise from 4.00% to 4.5 % in December this year, 5.00 per cent in February 2023 and 5.25 % in March 2023, which was to be the target level at which this rate would remain at least until December next year.
Currently, however, this rate is expected to increase by 50 percentage points in December this year and 25 bp in February and March 2023, which means that it may eventually reach 5.00 per cent instead of 5.25%.
All this means that the Fed's policy, which was one of the main catalysts for the cryptocurrency winter observed since the beginning of 2022, may stop having a negative impact on the cryptocurrency market, which is also supported by the over 10% increase in the BTC rate during Thursday's trading.
These increases, however, turned out to be only temporary, and we have seen declines again since last Friday. This trend is due to the turmoil around FTX, the third-largest cryptocurrency exchange that has filed for bankruptcy due to liquidity problems.
Theoretically, all the worst has already happened, but there may be an avalanche of bankruptcies of other companies in the industry, which could naturally weigh on the entire market causing it to fall even deeper.
It seems that although Bitcoin is gaining ground on Monday morning, it is still far too early to open the champagne and announce another boom. In practice, there is still a considerable likelihood of further sales of BTC and most cryptocurrency projects.
Looking at the weekly interval, you will notice that the BTC price has slipped below the technical support of $ 18,500 over the past week. This level was determined based on the peaks from December 2017.
Given that defeating one support tends to open the proverbial door to further depreciation to the next support area, in this case, a drop below $ 18,500 increased the likelihood of a further sell-off towards $ 12,000.
On the one hand, it may seem that this range is almost abstract; on the other hand, it is worth noting that only last week, the BTC rate fell by almost USD 4,600. So, given the current price level, it would be enough for Bitcoin to repeat such a decline, and the $ 12,000 support would be tested.
According to the popular opinion that "after every storm, the sun comes out", and similar to previous years, when the cryptocurrency market returned to the growth path after each of the bursts of the bubble so far, breaking new ATHs, it can be expected that it will be the same this time.
There are several factors for this:
First, every topic, including every problem, sooner or later becomes commonplace, and the financial markets pass it on to the agenda. This was the case with the collapses of the Mt.Gox stock exchange in 2014 (the largest cryptocurrency exchange in the world at that time) or QuadrigaCX in 2019 (the largest cryptocurrency exchange in Canada, about which Netflix even made a document).
Second, the Federal Reserve is nearing the end of its monetary tightening cycle. While Fed interest rates are likely to remain high for most, or even throughout 2023, the Fed is likely to begin an easing cycle in 2024 that, like in 2020, may contribute to an uptrend on risky assets such as stocks or cryptocurrencies.
Ethereum (ETH)
Ethereum fell by more than 36% between November 4 and 9. Despite Thursday's rebound, it is still far too early to forecast that the cryptocurrency will return to the upward path.
If the declines observed since last Friday continue, the ETH exchange rate could fall even to USD 1,000.
