Metadoro: Hollow Jump. Bitcoin Is Unlikely to Continue Up

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Bitcoin’s price ramped up to $24,867 per coin in mid-February, breaking through an important resistance level at $22,000-24,000. The major cryptocurrency surged after inspiring data on consumer prices in the United States was released.

The Consumer Price Index in the US in January edged slightly down to 6.4% year-on-year from 6.5% in December. Despite missing analysts’ expectations of 6.2%, investors consider the slowdown of inflation to be a good reason for the Federal Reserve (Fed) to ease its monetary tightening stance.

However, the market was hit with a huge disappointment just a day after the inflation figures were publicized. Retail sales rose to 3% month-on-month, an incredible jump from -1.1% in December. Together with the strong labor market in the US in January, when the economy added a mind-blowing 517,000 new jobs, the retail sales record for the last two years distracted investors.

They finally understood that the optimism in markets was too exaggerated, as these are minor reasons for the Fed to take any breaks in monetary tightening, even though these steps might be very small. Indeed, CME FedWatch Tool indicates that 90.8% of the market is betting that the U.S. monetary watchdog will raise interest rates by another 25 basis points to 5.0% in March and to 5.25% in May 2023.

However, investors are daunted about the future moves of the Fed as they think interest rates will remain at 5.25% by the end of 2023. The Fed is unlikely to keep its rates on pause as the inflation is not yet under control and the economy is performing a solid resilience to incoming shocks.

Moreover, the crypto market is suffering from attacks from regulators as the US Securities and Exchange Commission (SEC) filed a lawsuit against Paxos Trust, the issuer of Binance stablecoin (BUSD), which is the third-largest in the crypto industry, for violating investor protection laws.

Paxon is partnered with Binance and issues BUSD as a white label solution. The blockchain infrastructure platform has been ordered by the New York Department of Financial Services (NYDFS) to stop issuing dollar-pegged BUSD. The news about the lawsuit was followed by a settlement of $30 million by the crypto exchange Kraken with SEC over its staking service offered to US customers.

SEC chair, Gary Gensler, warned other crypto companies that the Commission will ramp up its regulatory efforts over the crypto market. Coinbase co-founder and CEO, Brian Armstrong, suggested that SEC may completely ban crypto staking for customers in the US. Crypto market policymakers denied any assumptions that Dollar-pegged stablecoins are some kind of investor contracts that guarantee income to users.

After a settlement with Kraken, SEC commissioner, Hester Peirce wrote that the regulators “do not initiate a public process to develop a workable registration process that provides valuable information to investors, just shut it down.”

Nevertheless, despite the regulatory crackdown the crypto market is following the appetite for risk stance instead. And this appetite is seen to be tamed in the stock market. The S&P 500 broad market index is hovering around 4140 points and is timidly testing strong resistance at 4200 points.

The yields for 10-year Treasuries rose above 3.82% on February 16, which is very close to the highs of 3.90% which were reached in late December 2022. The US Dollar index continues to climb up to 103.64, creating additional pressure on Bitcoin prices.

Technically, Bitcoin may edge higher to $25,000 per coin, but this would be the likely limit for its upside. If BTC prices slip below the resistance of $22,000-24,000 per coin, it may easily slip to $17,000.

By: Iván Marchena, The Head of Analytical Department Metadoro

Featured image via Pixabay.

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