Big Week Ahead In Crypto with Central Banks Meeting, What’s Happening in the Bitcoin Market?
Bitcoin price spiked on Sunday to reclaim $50,000 only to be back under this level before the end of the day. On Monday, as of writing, BTC/USD is trading just above $48k.
The cryptocurrency is still up more than 81% from its year low of about $27,700 in early January but down about 30% from its all-time high of $69,000 in early November.
At the start of the new week, the greenback meanwhile is quiet, with the dollar index still keeping just above 96, near its 17-month high.
While the fear of the new COVID-19 variant has subsided, British Prime Minister Boris Johnson sent sterling down after he said on Sunday that they face a “tidal wave” of the Omicron and that two vaccine doses will not be enough to contain it.
Markets have seen heightened volatility since the new strain emerged, initially driving flows from risky assets to safe-haven ones but reports that it may not be as bad as feared caused these flows to reverse recently. As we reported on Friday, S&P 500 closed at a record high.
“All I want for Christmas is clarity,” said Barclays analysts in a research note.
Regardless, it’s near certainty that monetary conditions will be tighter in 2022.
Purchasing power reduced by inflation + withdrawal of monetary stimulus = worse economic growth.
By end Q1 next yr, macro analysts may be busy revising down growth projections.
— Tascha (@RealNatashaChe) December 12, 2021
This week, however, the most notable event happening is the central bank policy meetings with six of the G10 central banks and several emerging market central banks set to meet.
“Central banks will need to strike a difficult balance between Omicron-induced uncertainty and elevated inflation levels,” the Barclays analysts said.
Amidst this, the Federal Reserve’s two-day meet would wrap up on Wednesday. This is of importance as investors are expecting the Fed to announce an acceleration in tapering of its bond purchases and signal the green light to at least one interest rate hike next year.
According to the CME Group's FedWatch program, traders are now seeing an over 50% chance of a rate hike by May 2022.
Rising short rates signal the market expects the Fed to start hiking sooner.
Sideways long rates signal the market is not concerned about inflation.
That's what the yield curve tells you.
The Fed may break something with these hikes, or not. https://t.co/aUYS8RsVjr
— Alex Krüger (@krugermacro) December 13, 2021
Both the Bank of Japan and the European Central Bank will be reviewing their policy settings this week. While the former is likely to remain dovish, market players are now talking about the possibility of a hawkish tone from the ECB.
However, hawkish central banks and an increase in rates won’t be good for risk assets, especially crypto. And while despite the current weakness in the market, some are still bullish, many have turned bearish.
According to Kyle Samani, co-founder of Multicoin Capital, the next bear market won’t be like the last one; in fact, “we may not have a bear market at all,” or rather half a bear market.
21/ In summary
1) The next bear market will not look like the last
2) More likely that tech crypto goes through more short-lived 2018 SaaS bear markets (eg May-June 2021)
3) The decoupling is real
4) When BTC gets flipped, things get *really* interesting
— ksam.sol (@KyleSamani) December 12, 2021
Crypto Twitter personality “Loomdart,” who is an investor at eGirl Capital, also shares the same view as he said in an interview that since the metaverse narrative and Facebook rebranding itself as Meta to reflect its long term vision of the virtual world, “there has been this gigantic influx of capital.”
“This isn't 2017, 2018's crypto anymore,” said Loomdart. “Everything was just one market, but crypto has evolved so far beyond that.”