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Anxiety about a recession has shaken the broader markets, and the week ahead has critical triggers that might see additional volatility. Digital asset investors are not exempt from this fear.
Bitcoin’s price dropped by 3% in the last day and was trading around $20,500, down from a high of $22,000 reached on Friday and maintained throughout the weekend.
Some other cryptocurrencies saw declines as well. The second-largest cryptocurrency behind Bitcoin, Ether ETH USD –2.15 percent, fell 3 percent to below $1,150. Solana and Cardano both lost 3 percent, while “meme coins” Dogecoin DOGE USD —3.76 percent and Shiba Inu —4 percent and 2 percent, respectively, were the worst losers among smaller cryptos or “altcoins.”
There has been a steep decline in the value of digital assets this year, with the total market capitalization of cryptos falling from roughly $3 trillion to $920 billion.
The failure of a large hedge fund, the meltdown of stablecoin Terra, and the demise of Celsius and Voyager Digital are all examples of price declines that have led to fissures in the crypto ecosystem.
Most of this year’s losses may be attributed to crypto’s close ties to equities, although the link between the two is significant. As a result, the NasdaqCOMP +0.12 percent index has fallen 27% this year, while the S&P 500 SPX-0.08 percent has fallen 19%.
Because of rising worries of an impending economic downturn, the crypto market has continued its downward path. The recession has seen a huge spike in Google searches in the last few weeks, according to Marcus Sotiriou, an analyst at digital asset dealer GlobalBlock.
Investors are alarmed by the prospect of a downturn in the economy. The Federal Reserve has already tightened monetary policy in response to rising prices and the highest inflation rates in decades. As a result, the danger is that further aggressive interest-rate hikes may cause a recession to take hold.
News in the next week might provide insight on inflation and how businesses see the economy, which could have a significant impact on both equities and cryptocurrencies. When consumer price inflation (CPI) data is released on Wednesday, it is expected to be at a 40-year high of 8.8 percent year on year.
Bitbank analyst Yuya Hasegawa noted in a note that “the market seems to be preparing for possibly startling figures on Wednesday.” After that, “Bitcoin’s gain will likely be restricted until then, and its prognosis for the second part of the week will also rely on CPI figures.”
We’ll also see the start of the financial reporting season this week. JPMorgan Chase (JPM) and Morgan Stanley (MS) led the pack on Thursday, followed by Citi (C) and BlackRock (BLK) on Friday.
According to Jim Reid, a strategist at Deutsche Bank, “this is a very crucial season (aren’t they all?) since the slide in equity prices so far in 2022 is mostly due to margin tightening and not actual earnings deterioration.”
The economy may be doing better than investors thought if profits keep rising. However, this might be a double-edged sword: if the economy continues to be robust, the Fed has no incentive to slow down the tightening of monetary policy, but economic wobbles could limit the pace of rate rises.
According to Hasegawa, even if investors receive the inflation figures and profits they desire, Bitcoin still has a limit, which he estimates to be between $12,000 and $24,000 each week.
Even if inflation data is considerably lower than predicted, “a breakthrough from the present level is still doubtful,” the analyst stated. There has been a constant increase in deposits from Bitcoin miners, indicating that there will be additional selling pressure soon, Hasegawa said.
And Bitcoin’s 200-week moving average, which is currently at around $22,600, seems to be strong resistance to the price, Hasegawa added.