The Time for Crypto to Fall has Come

This article is sponsored by FBS.

The FBS analysts have good news, bad news, a lot of thoughts, and a couple of charts - everything one may need to get the trading done.

FBS Has Never Been So Positive

Let's start from the positive side.

BlackRock, the world’s largest asset manager with a staggering $9 trillion in assets under management, just filed for a spot Bitcoin ETF. This might be the game-changer we’ve been waiting for. Previous attempts by other entities to launch spot Bitcoin ETFs were shot down by the US SEC, but BlackRock is different. It’s not just a giant that might tip the scales, but it’s also one of the world’s most influential companies; when it steps in, you can be sure that they’ve calculated pretty much everything.

Not to be left behind, Valkyrie, WisdomTree, and Invesco have also jumped on the bandwagon and filed for their own spot Bitcoin ETFs, and the domino effect doesn’t end there. Citadel Securities, Fidelity Investments, and Charles Schwab have also banded together to launch their own crypto exchange, EDX Markets. It’s like Wall Street decided to have a crypto party, and everyone's invited!

If that wasn’t enough, Deutsche Bank filed for crypto custody operations, and CACEIS (Crédit Agricole) has secured permission from the French regulators for crypto storage.

Most importantly, Jim Cramer, a personality that’s known to be a prominent counter indicator both in the legacy and crypto markets, has issued a call for holders to sell their crypto. As history has often proven, his bearish thoughts tend to be interpreted as the most bullish signal that anyone can get. Since he tweeted for people to sell back in early January 2023, the price of Bitcoin has risen by 76%.

The influx of these financial behemoths could potentially unleash a torrent of capital into the crypto market, and we may soon see various coins taking a trip to the moon.

But wait, let’s put the confetti away for a second.

The Economy Doesn’t Agree With the Market

As much as the crypto world is buzzing with excitement from the latest developments from TradFi, the global economy may just become the party pooper. The US Federal Reserve has hiked its interest rates to its highest level since 2007, tightening its monetary policy at an unprecedented pace.

Remember the lavish days of quantitative easing (QE) in 2020-2021, when the Fed injected a colossal $4.5 trillion into the economy? Those days are gone. As the chart below shows, the Fed has been gradually paring back assets on its balance sheet. And guess what? The signs are pointing towards a possible recession in Q3 2023.

Source: Federal Reserve

US households have taken a hit, too, with $1.1 trillion less in savings compared to last year, diverting their funds into treasury bills. With a mere $650 billion in savings, the alarm bells are ringing for the financial sector as households are able to move the markets, especially risky assets and treasuries. Meanwhile, the United States Personal Savings Rate has approached a 20-year low of just below 5%.

Source: Trading Economics

With the way the US monetary policy is structured, household savings are flowing into treasuries rather than stocks or crypto. However, this gravy train can’t last forever. The liquidity landscape is changing fast and is set to take effect by late 2023.

Finally,  various leading economic indicators from the Institute of Supply Management (ISM) have continued to fall, and job openings have peaked. While these are signs that the Fed’s monetary policy tightening measures are working as intended, achieving their ultimate goal of bringing inflation down to a 2% target may necessitate triggering a recession in the US.

Good News vs. Bad News

So here’s the problem: Will the promising advancements in the crypto sphere counterbalance the ominous economic indicators? Usually, the market tries to price in future expectations and events, and currently, it seems to be extremely positive despite messaging from the Fed suggesting two more rate hikes before the end of the year.

Data from the Fed Funds Futures suggest that the market has stopped believing the US Fed and its promises of more rate hikes. On average, it expects the rate to remain below 5.30% in Q3 2023 and to go down in 2024. The US Fed has also signaled that they intend to hold interest rates at the same level throughout 2024.

Source: FBS

The Fed’s money printer, alongside accommodative monetary policies from other central banks,  fueled the last crypto bull run. We can call it a period of cheap money. In some markets, rates were neutral, if not negative, and this insane amount of liquidity boosted the crypto market.

However, times have changed. On the flip side, if we believe the Fed to stick to its word, the money printer is going to be gathering dust and unlikely to be deployed anytime soon, at least until inflation is under control.

Charts to Look At

With Bitcoin halving still a year away, historical data from the three previous halvings suggest that the market may experience further downward trends before the next surge. The infamous Bitcoin rainbow chart can tell more about each halving. As you can see, the price of Bitcoin has usually seen a period of consolidation before each halving. Subsequently, FBS has observed each halving period to be followed by sharp movements and sometimes even crashes, and they expect something similar to happen this time as well.

Source: Blockchain Center

According to technical analysis, we are halfway through printing a double-top. The liquidity above the last high of $31,170 has been collected, and thousands of traders have entered the breakout of this level. We may see some consolidation near this level, but eventually, it could result in a drop.

In a nutshell, we’re looking for a decline and a double bottom.

Source: TradingView

Ethereum’s price action thus far looks slightly more favorable compared to Bitcoin. The second most popular cryptocurrency may reach the middle of the channel before falling. The analysts at FBS are predicting an upper price bound of $2,020 during this local uptrend.

Source: TradingView

Conclusion

The crypto market is currently filled with positivity. Heavyweight institutions like BlackRock are entering the fray, potentially heralding a new dawn for cryptocurrencies. However, the crypto market does not exist in a bubble (it may be bubbly, though) - it’s part of the broader financial ecosystem, which currently faces strong headwinds due to tightening monetary policies and signs of an imminent recession. This dichotomy presents both opportunities and risks. As usual, the road ahead is anything but predictable. Stay informed, stay cautious, and may your investments be wise.