Crypto-versed: banking on rate hikes

Crypto markets confront their own wall of worry this week ahead of several major central bank decisions.

In this week’s Crypto Verse, we summarize what to expect from the FOMC and ECB decisions, discuss the latest regulatory risks, and take a look at the charts of three crypto assets.

US Fed and ECB ready rate hikes

It’s considered an almost certain bet that the US Federal Reserve and European Central Bank will raise interest rates this week.

According to the CME’s ‘Fed Watch’ tool, the Fed is a roughly 85% chance of lifting rates by a further 25 basis points, in a move that would take US rates to 5.25%. Given a hike is all but priced-in, the crucial element for market participants will be the guidance given by Chairperson Jerome Powell and his team.

Traders are pricing in almost no likelihood of any further hikes and are even discounting the chance of cuts before year-end.

Hawkish language from the central bank, perhaps even a message of ‘higher for longer’ rates, could weaken riskier assets like Bitcoin.

Arguably, the ECB’s decision could bring with it an even greater level of volatility in the crypto markets.

This is because while the Fed’s move has been well-telegraphed and almost entirely priced-in, market participants are divided as to whether the ECB will raise by 25 basis points, or even 50. The consensus call is for a 25-point hike, which would take Europe’s key interest rate to 3.75%.

A big hike, or perhaps simply hawkish language, would likely rattle markets and send yields higher and risk assets lower. Although, the knock-on effects of a stronger Euro and subsequently weaker US dollar could support dollar denominated crypto prices.

Overall, given how yield and sentiment-sensitive crypto assets are, any hawkish surprise from one or both central banks would open a short-term downside for prices.

Coinbase battles SEC, prepares quarterly results

Regulatory risk remains a factor in crypto markets. Coinbase finds itself at the centre of the latest battle, as it butts heads with the US Security Exchange Commission. Amidst a broader crackdown on crypto exchanges following several high-profile collapses in 2022, the SEC has launched an offensive against the industry, accusing several industry players, including Coinbase, of breaking securities laws.

Having worked closely with regulators since floating in 2021, Coinbase has asked for greater guidance on when a digital asset is classified as a security and called for clear and tighter industry regulations. The SEC has not yet provided any clarity on these issues as it comes under greater political pressure to crack down on crypto exchanges.

Amid the regulatory risk and uncertainty, Coinbase launched its Bermuda-based international operations this week. The office won’t service US clients but will offer a suite of its products to clients in other jurisdictions.

Coinbase prepares its quarterly results this week, with analysts expecting a pick up in the exchange’s performance but still a significant financial loss. EPS is forecast to rise 32.13% to -$1.34, with revenues and profits expected to have bottomed in the middle of last year.

Three cryptos to watch

• Bitcoin

Upside in Bitcoin prices appears capped at $30,000, as price momentum turns lower. A head and shoulders pattern looks to be appearing in the charts too, with near term support around $27,200 right now.

Bitcoin daily chart

• Ether

The technicals of Ether appear to point to downside risks in the short term. The crypto has tended to be sold above $2000, with support around $1800 slowly eroding.

A break of that level could open a test of roughly $1700.

• Crypto 10 Index

A look at the Crypto 10 Index conveys the broad loss of momentum in crypto assets. Price appears range bound between $8000 and $8500.

Crypto 10 Index daily chart