Crypto Industry News from ZB.com

1. Market Wrap: Bitcoin Bounces After Fed Decision; Analysts Expect Sideways Trading

Bitcoin bounced toward $49,000 on Wednesday as traders reacted to the U.S. Federal Reserve’s decision to accelerate its stimulus withdrawal. Some analysts suggested the Fed decision was already priced in, which means some traders already sold long positions, which created attractive price levels for short-term buyers.

The central bank will reduce its bond purchases by $30 billion every month to wind them down early next year, twice as fast as the current pace of withdrawal of $15 billion every month. Some crypto investors say the $120 billion-a-month program helped to bolster bitcoin’s appeal as an inflation hedge.

For now, crypto prices are still stabilizing after the sell-off earlier this month. Bitcoin is up about 3% over the past 24 hours, compared to a 4% rise in ether and a 14% rise in Solana’s SOL token over the same period.

“The most likely path forward is more choppy/sideways price action heading into year end, though any major risk-off event or volatility spike that punishes risk assets would likely drag on BTC and the broader crypto market as well,” Delphi Digital, a crypto research firm, wrote in an Wednesday memo.

Latest prices

Bitcoin (BTC): $49,251, +3.06%

Ether (ETH): $4,057, +5.87%

S&P 500: $4,709, +1.63%

Gold: $1,778, +0.32%

10-year Treasury yield closed at 1.46%

Bitcoin losses accelerate

During the recent correction, bitcoin holders have experienced an acceleration in realized losses (price declines below their initial cost basis). Oftentimes, negative returns can encourage selling as traders become fearful of further market declines.

“We’re currently observing an acceleration of realized losses among BTC holders, trending above $1 billion daily on two occasions during this correction,” crypto data firm Glassnode wrote in a blogpost.

The BTC price decline from an all-time high around $69,000 triggered a more cautious tone in the market. And the acceleration of realized losses is indicative of nervousness of another sell-off, according to Glassnode.

2. First Mover Asia: Fed Decision on Stimulus Money Buoys Crypto Markets

Market moves: Bitcoin jumps above $49,000 after U.S. Fed’s decision to accelerate stimulus withdrawal.

Technician’s take: Bitcoin’s price momentum is stabilizing after several weeks of low trading volume.

Prices

Bitcoin (BTC): $48,843 +1.3%

Ether (ETH): $4,014 +4.5%

Markets

S&P 500: $4,709 +1.6%

Dow Jones Industrial Average: $35,927 +1.1%

Nasdaq: $15,565 +2.1%

Gold: $1,777 +0.2%

Market moves

Bitcoin, the №1 cryptocurrency by market capitalization, jumped above $49,000 on Wednesday, after U.S. Federal Reserve officials approved the acceleration of the central bank’s plan to withdraw coronavirus pandemic stimulus efforts.

Following the news, crypto and traditional markets turned higher as the central bank’s decision diminished investor uncertainty. The Fed bankers signaled they are ready to raise the short-term interest rate at least three times next year to battle the current high inflation.

The whole crypto market was watching the Fed decision closely because many believe tightened monetary policy is typically considered bearish for risk assets, crypto included. Prices for bitcoin and other crypto fell sharply in recent weeks because investors were worried about the Fed’s anticipated hawkish policy adjustment. The price rise after Wednesday’s news showed “a relief rally,” as reported.

3. Reddit Confidentially Submits Draft Registration Statement for Proposed IPO

Reddit has confidentially submitted a draft registration statement with the Securities and Exchange Commission (SEC) for a proposed initial public offering of its common stock, the company announced on Twitter.

The numbers of shares to be offered and the price range for the proposed offering have yet to be determined, the announcement said.

The IPO is expected to occur after the SEC completes its review process, subject to market conditions.

Reddit is in a “quiet period,” and for regulatory reasons cannot disclose more information, the announcement said.

The social media platform announced in January it was expanding its work with the Ethereum Foundation to provide development resources to scaling tools. In the announcement, posted to the Ethereum subreddit, Reddit employee u/jarins said the move increases the company’s commitment to the technology and echoes its long-held “decentralized ethos.”

Wednesday’s release does not constitute an offer to sell or the solicitation to buy any securities, Reddit said in a disclaimer.

4. Fed Speeds Up Stimulus Withdrawal, and Bitcoin Jumps

Federal Reserve officials took steps to accelerate the withdrawal of the unprecedented monetary stimulus used to prop up markets in the wake of the coronavirus, acknowledging the growing threat of inflation now at a 39-year high.

The U.S. central bank meeting was being closely watched by digital-asset traders because many bitcoin investors see the cryptocurrency as a hedge against the potential debasement of the dollar that might result from the monetary stimulus, which is facilitated by Fed money printing. So a faster withdrawal of the stimulus might provide an extra headwind for bitcoin prices.

But bitcoin (BTC) prices jumped after the Fed decision was announced at 2 p.m. ET (19:00 UTC), signaling that traders may have been worried about an even more aggressive withdrawal of the stimulus and faster interest rate increases next year. The bitcoin price had fallen 15% just in December alone.

“The market went down before the fed announcement, so it’s probably correcting now,” Merav Ozair, a professor in the finance and economics department at Rutgers Business School told. “Inflation is coming for sure, and we see it.”

As of press time the largest cryptocurrency by market capitalization was up 3.7% over the past 24 hours to about $48,700.

According to a statement Wednesday, the Fed will double the pace of tapering its monthly bond purchases, reducing them by $30 billion every month until they’re completely wound down early next year. Under the Fed’s previous plan, it would have withdrawn $15 billion of the stimulus every month to wind down the program by the middle of next year. For most of the past couple of years, the Fed has been printing money to buy about $120 billion of bonds a month.

A quicker winding down of the asset purchases could allow the Fed to proceed more quickly to start raising interest rates for the first time since 2018. After the spread of the coronavirus in March 2020 began to hit global markets and economies, the Fed cut interest rates to close to zero and has held them there since then.

“Supply and demand imbalances related to the pandemic and the reopening of the economy have continued to contribute to elevated levels of inflation,” the Federal Open Market Committee, as the Fed’s monetary-policy committee is known, said in the statement.

At a press conference on Wednesday after the decision was announced, Federal Reserve Chair Jerome Powell said the asset purchases would end by mid-March, a few months earlier than communicated just last month.

“The economy no longer needs increasing amounts of policy support,” Powell said.

5. Bitcoin’s Decline Suggests Fed’s Hawkish Policy Shift Is Priced In

Bitcoin appears to have digested the U.S. Federal Reserve’s impending hawkish, or anti-inflation, policy adjustment with a significant decline in recent weeks. Analysts said the cryptocurrency could see a relief rally after the Fed decision, due later on Wednesday.

The central bank is widely expected to announce a $30 billion reduction in asset purchases starting in January, doubling the pace two months prior in a bid to phase out the $120 billion per month program by March. Further, it is likely to signal two rate hikes in 2022.

The hawkish expectations have built up in response to elevated inflation pressures and Chair Jerome Powell’s recent decision to retire the word “transitory” from inflation discussions. Monetary policy tightening is typically considered bearish for assets, including bitcoin — a risk-on inflation hedge and emerging technology.

That said, a significant de-risking has already happened, leaving the door open for a classic “buy the fact” trade or relief rally triggered by a highly anticipated negative announcement.

Bitcoin peaked near $69,000 on Nov. 10 after the U.S. consumer price index (CPI) touched a three-decade high of 6.2% in October, but has since dropped more than 30%. The CPI rose to a four-decade high of 6.8% in November.

The dollar index, which tracks the greenback’s value against major fiat currencies like the euro, pound, and yen, has risen over 2% in the past few weeks, hitting a 16-month high of 96.93.

The two-year Treasury bond yield, which mimics the short-term inflation and interest rate expectations, recently rose to an 18-month high of 0.72%.

Meanwhile, the fed funds futures have pulled forward the timing of the first interest rate hike to May 2022 and priced in at least three hikes for next year.

So, the probability of a deeper sell-off on the Fed announcement is relatively low unless the central bank hints at more aggressive tightening than what’s baked in.

“The Fed is unlikely to come in more hawkish than what the market is expecting,” Joel Kruger, a currency strategist at LMAX Digital, said. “That leaves the balance of risk tilted to the other side.”

“De-risking in anticipation has been extensive. Many already panic sold. Positioning is light. Therefore, if the Fed were to deliver accelerated taper, signal two hikes for 2022, and nothing else, I would expect a rally across asset classes,” trader and analyst Alex Kruger tweeted.

Historical data supports the case for a broader crypto market bounce in the final days of December. “We’ve seen this pattern over the past four years — where the first two weeks of December are very choppy, only to resolve incredibly bullish over the back-half of the month and into the new year,” Jeff Dorman, chief investment officer at Arca Funds, said in a weekly markets note published Monday.

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ZB Team

December 16,2021

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