Crypto-versed: crypto asset rise on rate cut bets

Crypto prices remain elevated, despite pulling back to start the week amidst fresh controversy surrounding Binance. In this week’s Crypto Verse, we look at the macro drivers behind the rebound in crypto prices and explain what’s going on with Binance.

Fed confirms pausing is on the table, pushes back on rate cuts

Last week we discussed the systemic risk in US banks, and how that simultaneously drove expectations for weaker economic activity, lower US interest rates and a flight to non-fiat assets.

During the week, the US Federal Reserve met to decide policy, and although it opted to hike the Federal Funds Rate to 5.00%, flagged that it is open to pausing its rate hiking cycle. Fed Chairperson Jerome Powell stated the central bank “no longer… anticipate that ongoing rate increases will be appropriate” with the recent issues in the US banking system “are likely to result in tighter credit conditions for households and businesses”.

Despite this, Powell stopped short of opening the door to rate cuts this year, as is currently implied in interest rate futures markets. However, the Fed’s Statement of Economic Projections (and its so-called dot-plot) revealed a bias towards lower interest rates in the longer term, as weaker growth feeds through into lower price pressures in the economy.

Fed "dot-plot" chart

Crypto prices pull back on fresh Binance controversy

Although crypto prices have surged on mounting risks to the traditional financial system, uncertainty continues to plague the crypto industry. Binance returned to the headlines earlier this week after it was reported the US Commodity Futures Trading Commission (CFTC) sued the company on allegations it offered unregistered crypto derivatives and encouraged its clients to evade compliance controls through the use of VPNs.

Following the spectacular collapse of FTX last year, along with increased scrutiny from US lawmakers, and the failure of several Crypto banks, authorities have the crypto industry in its crosshairs. Traders remain wary of any further regulation that could stifle the growth in crypto assets, with the price of Bitcoin and the other major tokens taking a spill on the Binance developments.

Crucially too, the CFTC classified Bitcoin and several other crypto assets as a “commodity” rather than a “security”. While seemingly semantic, the development shows a split between authorities regarding how crypto assets should be regulated, and who has the ultimate responsibility for regulating them.

Given the legal bar set by the “Howey test” to determine whether an asset can be considered a security, its unlikely crypto assets qualify.

Three cryptos to watch

• Bitcoin

Following a huge surge to begin the year, Bitcoin prices are pulling back, as the bank crisis apparently subsides. Sellers emerged around resistance at $US28,000 with previous resistance at roughly $25,000 acting as support. An upward-sloping trendline might act as further resistance, while a break of $25,000 could open a drop to $22,800.

Bitcoin daily chart

• Ether

Ether prices are displaying signs of weaker upside momentum, after significant gains to begin 2023. The crypto is in a short-term trend channel, with a confluence of support levels around $1680. Sellers have emerged above $1800.

Ether daily chart

• Litecoin

The bullishness in crypto prices is less prevalent in the smaller alt-coins. Litecoin has pushed higher in recent weeks, but it has failed to make new year-to-date highs. Price is carving out an ascending wedge pattern, pointing to a possible pullback.

Litecoin daily chart