Has the cryptocurrency market hit rock bottom?

The current European energy crisis could force the Federal Reserve to pivot on its monetary tightening regime. However, with inflation showing no signs of slowing, the cryptocurrency market may still struggle to recover significantly.

Has the market hit bottom?

From the smallest retail investors to the largest hedge fund managers, this is the big question on everyone’s mind right now. The barrage of macro signals and technical indicators makes it difficult to understand what exactly is going on in the economy in general, let alone the fast-moving cryptocurrency market.

Several major technical indicators have been issuing buy signals in recent weeks, reinforcing the idea that the cryptocurrency market may have bottomed out. It is worth considering how the cryptocurrency market reacts to macroeconomic news. A big shift came after June consumer price index data hit a new high. Many market participants expected cryptocurrencies to start a new decline after this news. However, the opposite happened. Since the release of the CPI, the cryptocurrency has been trading higher, frustrating any late short selling attempts. Likewise, Wednesday’s 75bp rate hike and yesterday’s negative GDP growth paradoxically pushed the cryptocurrency higher, indicating that the market may now have. “integrated”The current economic downward trend.

However, even if market participants have stopped worrying about the overall macroeconomic situation, that doesn’t mean there aren’t more of them. ache Arriving. The fact is that inflation is still very high and the Fed is determined to bring it to an acceptable level. Although Fed Chairman Jerome Powell said after Wednesday’s hike that he was “it becomes advisable to slow down the pace of increases“He also left the door open for a rise”even more important“If necessary. The ongoing hikes, coupled with a short sale of Treasury and mortgage-backed securities from the Fed, will restrict the flow of money and will almost certainly put a stop to risky assets such as cryptocurrencies.

The other big macroeconomic problem is the cost of energy, especially in Europe. The war in Ukraine and the ensuing boycott of Russian energy have exacerbated the already alarming rates of global inflation. Winter is coming, and there is a real possibility that many European countries do not have the necessary energy, and certainly not at a price that the average citizen is willing to pay. If the embargo on Russian oil and gas continues, Europe will have to rely on the United States for its energy supply in the coming months.

The euro has weakened significantly against the dollar in recent months, aided by rate hikes and monetary tightening by the Fed. At the same time, it seems likely that European nations will have to buy US energy to run their economies. which puts the United States in a difficult situation.

The US has two options: take steps to strengthen the euro against the dollar by injecting liquidity into the European economy, or let European countries default due to rising energy costs. Keep in mind that many European countries and the European Central Bank hold foreign exchange reserves of US debt, which means that if they fail, the US economy will also be affected.

Therefore, the Fed may have to end its monetary tightening to avoid a catastrophe in Europe. Currently, there is a window by winter for the US to continue raising rates. However, Europe will soon reach a breaking point and the Fed will be forced to ease some of the pressure by stopping or reversing its current monetary policy, which will weaken the dollar.

Can the market go down before the Fed is forced to pivot? It will be difficult for cryptocurrencies to reach new lows soon, given the huge amount of deleveraging that has sent bitcoin below $ 18,000. But we could certainly revise these levels if the macroeconomic situation were to worsen.

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