Bitcoin & Crypto Fall as Market Awaits US Inflation Numbers, ‘Overvalued’ Tech Stocks Worry Traders
The crypto market traded lower over the weekend, with US inflation data, possible moves by the US Federal Reserve (Fed), and bearish-looking technology stocks all weighing on investors’ sentiment and causing worry about the way forward.
On Monday at noon UTC, bitcoin (BTC) was down by 3.7% for the past 24 hours and by more than 11% for the past week, trading at USD 41,099. At the same time, ethereum (ETH) was down 6% for the past day and more than 13% for the week to a price of USD 3,057.
The moves over the weekend followed last week’s signals from the Fed that the central bank will not let up on its planned tightening measures.
Commenting on the outlook for the US economy, Cleveland Fed President Loretta Mester said that she believes a US recession can be avoided even as the Fed continues to tighten. “It’ll be challenging, but we can do it,” she said, per a Bloomberg report.
Bitcoin 2022 fails to excite traders
Perhaps surprisingly, the major industry conference Bitcoin 2022, held in Miami from Thursday to Saturday last week, did not translate into excitement among bitcoin traders.
Leading up to the event, BTC fell hard on Wednesday, before trimming some of its losses as the conference kicked off on Thursday. As of Friday, however, the bears came back in force to push the coin down again, with selling continuing on Sunday and Monday morning in Europe.
As usual, the selling over the weekend led to spikes in liquidations of leveraged bitcoin derivatives traders on exchanges. According to data from Coinglass, more than USD 40m of bitcoin long positions were liquidated during 12-hour periods on both Friday and Monday.
The liquidations followed a USD 60m liquidation of long bitcoin positions in 12 hours as the market fell hard on Wednesday last week.
Focus turning to US inflation
Notably, the moves in bitcoin and the broader crypto space also come as the market awaits new inflation numbers in the US on Tuesday this week.
As the month before, the figure is expected to be high, with the consensus among analysts being a reading for the consumer price index (CPI) of 8.4%, according to Bloomberg.
Although generally believed to be good for hard assets such as bitcoin, rising inflation is causing concern among market players because it could force the Fed to act aggressively in order to bring down prices.
“[T]he Fed is caught between a rock and a hard place when it comes to tackling runaway inflation without sinking the economy,” Antoni Trenchev, managing partner at the crypto lending and borrowing firm Nexo (NEXO) told Bloomberg in comments today.
According to the trading team at the Bitfinex crypto exchange, there is “a sense of nervousness” that has” crept into the market amid low volumes over the weekend.”
The team argued that,
“The prospect of more interest rate hikes and increasing concerns over the economic environment may become recurring themes for this year. As is the case with the stock market, we may see more outbreaks of episodic volatility in the months to come.”
There is some positive news, however, as they also argued that, as bitcoin adoption continues to grow, “the underlying strength of the ecosystem could distinguish it from conventional markets.”
BTC and tech stocks correlation grows
For bitcoin’s part, the moves over the past week have largely followed those of the stock market, and more specifically the technology-heavy Nasdaq 100 index.
However, this is not a new thing. There has been a consistent positive correlation between BTC and tech stocks since 2019, with the correlation only growing stronger last week as both markets fell in tandem.
Bitcoin is highly correlated to tech stocks pic.twitter.com/iqPlfN2kIU— Willem Middelkoop (@wmiddelkoop) April 11, 2022
The worrying thing about the increased correlation, however, is what some consider a bearish outlook for tech stocks at the moment. This is largely a result of the tech sector having among the highest valuations in the stock market, and it is, therefore, reasonable to expect that this sector could also be hit the hardest as the Fed continues to raise interest rates in the US.
According to Steven Cress, the Head of Quantitative Strategy at Seeking Alpha, many tech stocks are “significantly overvalued and vulnerable to government attack.” Apple, the most valuable of all tech companies listed in the US, is “extremely overvalued,” the strategist said, giving it a valuation grade of ‘F’.
Also somewhat bearish on the near-term outlook for both the Nasdaq and the crypto market, is Arthur Hayes, the former CEO of crypto derivatives exchange BitMEX, who argued in a blog post today that tech stocks will fall further.
“The chart tells me the [Nasdaq] will continue lower, test its local low, and break decidedly below it,” Hayes said, adding that the “next stop after that is to test 10,000.”
The Nasdaq 100 index closed at USD 14,327 on Friday. Hayes’ prediction thus represents a significant fall for the index, taking it back to a level not seen since July 2020.
According to Hayes, however, it is not that stocks are leading crypto lower, but rather the other way around, since crypto markets are “the only free markets left globally.”
“As such, they will lead equities lower as we head into the downturn, and lead equities higher as we work our way out of it. Bitcoin and Ether will bottom well before the Fed acts and U-turns its policy from tight to loose,” Hayes wrote, before giving his price prediction:
“By the end of the second quarter in June of this year, I believe Bitcoin and Ether will have tested these levels:
Bitcoin: [USD] 30,000
Ether: [USD] 2,500.”
However, he stressed “There isn’t much science to these numbers other than a gut feeling” and “Nothing is certain — I only ascribe probabilities to outcomes and trade accordingly.”
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– As Inflation Is Here to Stay, Bitcoin, Ethereum, and Gold Investors Will Win, But Brace for Volatility – BitMEX
(Updated at 13:29 UTC with a new last sentence.)