The Nasdaq Crypto Index (NCI) closed Sunday (11/06/22) 2.3% above last week’s closing. The index’s neutral performance was influenced by ether (ETH), up 1.2%, while bitcoin (BTC) rose 2.5%.
Coming out of a week in which ETH saw its biggest gains since July, investors braced for another FOMC monetary policy announcement. After a brief dip and recovery on Monday, crypto asset prices moved sideways until Wednesday afternoon, with BTC sticking close to $20,500 and ETH moving between $1,550 and $1,600.
On Tuesday, crypto media sources were focusing their coverage on Dogecoin’s (DOGE) 102% rise in October. The meme coin had worked its way back into the top 10 crypto market caps—overtaking Cardano (ADA) and Solana (SOL) — as investors became hopeful that Elon Musk’s takeover of Twitter could benefit the token.
On Wednesday, the FOMC confirmed market expectations by announcing a fourth consecutive 0.75% hike, sending the Fed funds rate to the target range of 3.75% to 4%. While Wednesday’s monetary policy announcement was predictable, market participants were hopeful Fed Chair Jerome Powell would signal the FOMC’s intention to slow down the pace of rate increases (i.e., smaller rate hikes).
As per usual, Powell’s statement and Q&A included both hawkish and dovish considerations. While Powell made sure to emphasize “the ultimate level of interest rates will be higher than previously expected,” he also conceded that a smaller rate hike in December would not necessarily be contingent on positive inflation data until then. Despite Powell’s tepid tone, the probability of a 50 bps rate hike grew following the meeting, according to the CME’s FedWatch Tool.
In short, the Fed chairman’s statement was less dovish than expected, but it certainly didn’t rule out the possibility of smaller rate hikes starting in December. Powell’s ambiguous posture disappointed investors, causing BTC’s price to retreat by $500 (-2.6%) and ETH’s price to drop by $60 (-3.9%). By Wednesday night, BTC and ETH reached their weekly lows of $20,064 and $1,508, respectively. Traditional markets had a similarly negative day, with all major US indexes closing in the red, led by Nasdaq’s 3.36% drop.
Prices partially recovered in the final hours of Wednesday, but dropped back down toward weekly lows on Thursday morning on bad macro headlines. First, the Bank of England announced a 75 bps rate hike, its largest since 1989. Meanwhile, back across the pond, US jobless figures corroborated Powell’s description of an “overheated” job market.
Prices recovered once again Thursday afternoon, before taking off in the early hours of Friday on an unusually high volume and despite no apparent bullish drivers. BTC and ETH prices rose by nearly $1,000 (4.6%) and $120 (7.7%), respectively. After surging for 12 hours, ETH reached its weekly high of $1,659 by midday on Friday.
Early on Friday afternoon, prices initially fell but quickly regained upward momentum. By Saturday afternoon, BTC hit its weekly high of $21,415. BTC prices then registered a slight dip before trading sideways for the remainder of the weekend, while ETH slowly trended down during the same period.
Politics takes center stage this week as Americans go to the polls Tuesday for midterm elections. Traditional markets have historically reacted positively to the prospect of the gridlock caused by divided governments (when different parties control the Executive and Legislative branches). Republicans are expected to take control of the House of Representatives, while the outcome in the Senate is considered too close to call. More importantly, midterm elections could give some of the crypto regulation bills in Congress new life after remaining stagnant throughout most of 2022. Beyond politics, Friday’s US CPI reading will headline the macro calendar.
The Bank for International Settlements (BIS) has announced a project that hopes to leverage the efficiency of decentralized finance (DeFi) in order to reduce the cost of cross-border payments. The central banks of France, Switzerland and Singapore will pilot the use of automated market makers for the cross-border exchange of hypothetical CBDCs to better understand the viability of an international blockchain-based settlement system.
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