Macro Suggests Crypto Cycle Top Might Not be In, Risk-on Could Become a Key Narrative Once Again


After going to nearly $40,000, Bitcoin is down at $38k yet again today. Meanwhile, Ether, currently above $2,600, went as high as $2,770 late on Wednesday ahead of its much anticipated London upgrade that will activate EIP 1559.

The total crypto market cap is also back near $1.7 trillion, up from a $1.29 trillion low a fortnight back.

As crypto asset prices make a strong recovery, the fear of a prolonged 3-year bear market, like after the 2017 bull market, following the new all-time highs in April and May, has been subsidizing. Some traders and investors expect to see a repeat of the first half of 2021.

“Hard to see the cycle top while the Fed remains dovish,” said trader and economist Alex Kruger.

“The Fed remains dovish even as it starts to discuss tapering as it's concerned with jobs, while it sees inflation as transitory. Jobs are taking longer to recover as remote work has increased productivity. NFP data is key.”

As we have reported, Federal Reserve Chair Jerome Powell has assured the market at every turn that there is still a way to go before fiscal support is removed as employment targets are not met yet. He will tell in advance when the tapering would officially begin.

Divided Views

Fed Vice Chair Richard Clarida, a key architect of the US central bank's new policy strategy, also said this week that an interest rate hike was likely in 2023, while he could “certainly” see an announcement on a taper “later this year.”

“Commencing policy normalization in 2023 would, under these conditions, be entirely consistent with our new flexible average inflation targeting framework,” he said in a webcast discussion hosted by the Peterson Institute for International Economics.

Fed officials, however, seem divided over when to start tapering, with St. Louis Fed President James Bullard calling for a quicker reduction of the bond-buying. Bullard said earlier on Wednesday,

“So you'd be sitting here next summer, with inflation well above target and jobs on the way back to pre-pandemic levels. That sounds to me like that's something we should be prepared for.”

While Dallas Fed President Robert Kaplan is also endorsing tapering to start “soon,” his views differ from Bullard in the sense that he wants to pare the pace of purchases gradually.

Market at Glance

Amidst the tapering talks, the dollar has gained strength as it trades above 92.2 while spot gold is around 1,811.62 per ounce.

S&P 500 meanwhile fell from its record high of 4,429 hit on July 29 to 4,402 after data signaled a slowdown in job growth last month. The benchmark index has been on the rise ever since the March sell-off when it fell to 2,200.

Robinhood Markets (HOOD) is actually leading after having a slow start of its debut when it opened at $33, but on Wednesday, it went as high as $85 and is currently trading at $70.39.

The actual yield on 10-year Treasuries fell to a record low as corners over the outlook for economic growth mounts. The exact rate which removes the expected impact of inflation over the next decade is at minus 1.13%

Meanwhile, the cryptocurrency market is also enjoying recovering after experiencing a sharp pullback, 50% to as high as 95%, despite the ongoing regulatory scrutiny. Kruger said,

“Family offices and HNI (high net worth individuals) still coming in. Real yields just hit a new historical low (negative) that pushes speculators out the risk curve. Could become a key narrative once again.”

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