Not into crypto? Not a Bitcoin, Ethereum or DogeBonk trader/investor? Fair enough. Or is it? Maybe it’s time you took a look into what’s probably the most widely ridiculed and misunderstood asset class, as it might be threatening to outperform everything again before too long.
Well, at least if a good half of Crypto Twitter is to be believed anyway. We’d best, however, give a sideways, caveating glance to swirling macroeconomic conditions that likely have plenty of headwind puff left in them this year.
But, for this week at least, crypto is back in the spotlight, and Coinhead is suddenly again being asked the usual “normie” questions about Bitcoin and co. from family, friends and anyone who asks us: “So, what do you do?”
To help us out, we threw some of those exact questions over to Matt Willemsen, Head of Research at Aussie crypto-education outfit Collective Shift.
Fed expectations are pumping the market
Hi, Matt. We’ve attempted to answer this question ourselves in our morning Mooners and Shakers round-ups just lately, but we’re keen to hear it from you. Why is Bitcoin and the crypto market pumping right now?
Crypto prices are pumping because the US bank collapses [namely Silvergate, Silicon Valley Bank, Signature] have changed the market’s expectations over the US Federal Reserve’s interest-rate decisions. Before the collapses, the market was pricing.
As per CME FedWatch Tool, a week ago, the market assigned a 40% chance to the Fed hiking rates by 50 basis points later this month. Today, that probability is 0%.
There’s now a 21% chance the Fed will hold rates steady, which is an unheard-of decision just a week ago. Generally, the lower the rates are, the more appetite there is for risk-on assets such as cryptocurrencies.
And another reason for the weekend gains was the fear-allaying news that the affected bank depositors would be made whole.
[The Federal Deposit Insurance Corporation (FDIC) for instance, in collaboration with the US Treasury has created a “Deposit Insurance National Bank” to make sure depositors of SVB have their funds protected.]
So what do you tell those on the sideline who might be asking you at the moment: “Should I get into crypto now? Should I buy some Bitcoin? It’s pumping!”
I’d say that if they’re content with holding BTC for several years, then now is an opportune time to start averaging in. By breaking your purchases into small sizes, you can worry less about buying too high, but you must also appreciate that prices may keep rising.
And Ethereum? Same deal? Good time to get into that one, too?
Yeah, now is a good time for long-term investors to dollar-cost average into both BTC and ETH, provided they understand the high risk compared to many other asset classes.
A pivotal time for risk markets?
Crypto Twitter certainly seems to be getting frothy again about the prospect of quantitative easing and “money printer goes brrrr” off the back of the Fed and US Treasury’s banks-funding announcement the other day…
… So, with that in mind, how realistic do you think it is that the Fed might actually pivot in this half of the year?
The Fed is unlikely to pivot in H1.
What! That’s it. We’re selling all our Dogelon Mars coins immediately.
A lot hinges, though, on the results of upcoming inflation data: CPI (March 14), PPI (March 15) and PCE (March 31). Note, a pivot does not mean the Fed will be firing up the money printer like they did in recent years. Instead, it’ll just mean that it will start gradually cutting rates.
Possible tailwinds and headwinds?
Got it. So what needs to happen to make you think a bull run could be on the cards sooner than expected?
Well for several weeks, [crypto exchange] Binance has been rumoured to be nearing a record-breaking settlement with the US Securities and Exchange Commission (SEC).
If this alleged settlement happens and, crucially, the terms of it aren’t terrible, then I think crypto will likely rally.
Binance remains, arguably, the most potent source of market uncertainty. It’d be nice to have that uncertainty removed.
Maybe the SEC is running low on cash reserves again after it was only able to shake down Kraken for a measly $30 million recently. What headwinds do you think the market still faces that would make you think it has a way to go yet?
The main one is still inflation. If Tuesday’s data prints higher than expected, the remote possibility that the Fed doesn’t move rates later this month will be wiped out.
And what about the idea of US regulators looking to shutter crypto on/off ramps – such as Signature Bank this week, for example. Is this something that’s being slightly overlooked as a major concern right now?
I’m somewhat concerned about that in the short term. I’d be extremely concerned if all other US banks stopped servicing crypto companies.
Whilst Silvergate and Signature Bank serviced the vast majority of US crypto companies – mainly due to their SEN and Signet offerings, respectively – there are other options still available, to my knowledge. These include Cross River Bank, Customers Bank, Sutton Bank and First Foundation Bank.
Meanwhile major banks including JPMorgan and BNY Mellon continue to bank more established crypto companies such as the USDC isssuer Circle and major exchange Coinbase.
Eventually, I expect more overseas banks to expand into the US or existing US banks to start servicing crypto companies in an effort to gain market share. Admittedly, it’s difficult to see the latter unfolding any time soon, though.
Finally, just what the hell is going to happen next?
Tell us, Matt. Up, down, or just a hell of a lot more sideways chop for the rest of this year for the crypto market – what are you seeing in the tea leaves?
At this stage, I still think crypto price action will be relatively boring through year-end with short periods of volatility. I’m sticking with my 2023 prediction that BTC will trade between $20,000 and $30,000 for the vast majority of the year.
And is 2024 still the year you think the crypto market could really outperform, maybe aligning with the Bitcoin halving four-year-cycle narrative?
I do expect the crypto market to outperform in 2024, yes. And uncannily, this will yet again align with BTC’s halving cycle.
That said, I believe too many investors misattribute the halving cycle as determinant of BTC prices. In my opinion, global liquidity and monetary policy affect the price of BTC more than the halving.