Crypto Market Surges as Traders Anticipate Monetary Policy Stability
Summary:
Cryptocurrency market capitalization rises as traders anticipate no changes in the U.S. monetary policy. The crypto market valuation reaches $1.035 trillion, showing gains across major cryptocurrencies. Investors react positively to the U.S. consumer price index report, and likelihood of a rate hike pause increases. The recent FTX court ruling and restrictions on crypto asset sales contribute to market optimism. Short-term rebound observed, but caution advised as the market risks bearish continuation.
The combined market capitalization of cryptocurrencies has surged within the last 24 hours as traders anticipate no changes in monetary policy following the latest U.S. inflation data. On September 14, the crypto market's valuation peaked at $1.035 trillion, registering a 1.58% increase throughout the day. This includes the leading cryptocurrencies like Bitcoin (BTC), Ether (ETH), and Solana (SOL).
Crypto investors have responded positively to the U.S. consumer price index (CPI) report on September 13. The report showed a 0.6% increase in the CPI for August, the largest monthly rise in over a year, with gasoline prices contributing to more than half of the increase. In contrast, core prices, excluding food and energy costs, rose slightly by 0.3%, slightly higher than the expected 0.2%. However, the overall core inflation remained on a downward trajectory towards the Federal Reserve's target of 2%.
The downward trend in core inflation aligns with derivative market traders' increased likelihood of a pause in rate hikes in September. Probabilities for the Fed's meeting on September 19-20 have risen to 97% from 93% a week ago. Historically, stabilizing or lowering interest rates has been seen as a positive signal among crypto investors, which may explain the recent market rally.
In addition to the inflation data, crypto investors have also reacted favorably to the recent court ruling regarding the defunct crypto exchange FTX. The ruling approved the sale of FTX's crypto assets while prohibiting shareholders from selling Bitcoin, Ethereum, and other affiliated assets. These cryptocurrencies account for approximately 70% of the entire crypto market valuation, and their exclusion from the ruling alleviates concerns of potential selling pressure from FTX sales.
Furthermore, restrictions have been set, limiting the sales of remaining crypto holdings to a maximum of $50 million per week and requiring written notice beforehand.
Researchers at Messari had previously dispelled theories about FTX sales causing massive sell-offs in the crypto market, as Solana (SOL), one of FTX's largest crypto holdings, is subject to vesting schedules. SOL has experienced a 4% increase in the past 24 hours, contributing to the overall upward movement of the crypto market.
The recent gains in the crypto market over the past 24 hours are part of a short-term rebound that began on September 11. The market's daily relative strength index (RSI) dropped to 30, which is considered an "oversold" threshold. Traditionally, when the RSI falls to or below 30, it is seen as a buying signal. This trend has been prevalent in the crypto market this year.
However, it is worth noting that the ongoing rebound in the crypto market does not necessarily indicate a prolonged buying trend. As long as the market remains below its key exponential moving averages (EMA), specifically the 50-day EMA near $1.08 trillion and the 200-day EMA near $1.06 trillion, there is a risk of bearish continuation.
Furthermore, the crypto market has faced resistance from a descending trendline since July 2023, which has limited its potential for significant upside. Therefore, the ongoing rebound may continue until the market valuation reaches the trendline or the 50-day EMA, both of which converge at around $1.04 trillion.
On the other hand, if there's a pullback before or after testing the trendline-EMA confluence, there is a risk of the crypto market's valuation crashing to the range of $980-995 billion throughout Q4.
Please note that this article does not provide investment advice or recommendations. Every investment and trading decision carries risks, and readers should conduct their own research before making any decisions.
Published At
9/14/2023 12:07:00 PM
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