Good morning. Here’s what’s happening:
Prices: Cryptos soar following the U.S. central bank rate hike.
Insights: Bitcoin and other cryptos show the impact of events in Asia.
Technician's take: Expect choppy price action within the current trading range.
Bitcoin (BTC): $39,644 +5%
Ether (ETH): $2,946 +6%
S&P 500: 4,300 +2.9%
DJIA: 34,061 +2.8%
Nasdaq: 12,964 +3.1%
Gold: $1,881 +0.6%
Cryptos soar following U.S. central bank rate hike
And on the fourth day of May, there was sunshine for bitcoin and other cryptos.
The largest cryptocurrency by market capitalization was recently trading at about $39,600, up over 5%. Ether, the second-largest crypto by market cap, was changing hands over $2,930, a 6% gain. Other major cryptos were even more in the green, with ADA and AVAX rising over 16% and 11% respectively, and SOL jumping 8%.
Crypto's upswing, which broke nearly a week of declines, followed the U.S. central bank's long-awaited half-point interest rate hike, the most significant step so far this year in its quest to tame rising inflation. The U.S. Federal Reserve also said that it would reduce its $9 trillion asset portfolio of mortgages and Treasury securities. Other central banks have also raised rates in recent months, although not as aggressively.
Investors have been fearful that the Fed's newfound hawkishness would send the economy into recession. The rate increase was the largest since the bank raised it by a half-point in 2000.
Growth has already slowed over the first part of the year. U.S. gross domestic product declined 1.4% on an annualized basis during the first quarter. But in remarks Wednesday, Fed Chair Jerome Powell indicated that the Fed could reduce the monetary stimulus that fueled the country's strong growth last year while ensuring the sort of soft economic landing that would comfort investors. Powell described the economy as strong, a point underscored by recent, strong employment numbers, and ruled out larger rate increases, all of which buoyed equity markets.
The tech-heavy Nasdaq rose over 3% and the S&P 500 and Dow Jones Industrial Average jumped nearly as much.
Despite Wednesday's spike, bitcoin has spent 2022 in the doldrums, falling 17% in April alone. May, a historically strong month for crypto, had shown little pep till now as investors continued digesting a toxic combination of sinking economic indicators and global uncertainty, largely fueled by Russia's unprovoked invasion of Ukraine.
Dan Young, head of partnerships at blockchain analytics firm Elementus, noted ongoing concerns about inflation; disappointing rates of crypto adoption, particularly in El Salvador, which made bitcoin legal tender last year; "high-profile protocol breaches that have highlighted vulnerabilities and increased regulatory scrutiny of miners." Yet, Young said that "the space has shown to be incredibly resilient."
"This resilience is what keeps crypto surging back, as we saw today with the (then) 6% spike," he said, adding, "This remains an incredibly volatile emerging asset class, where conventional notions around market sentiments are continually turned upside down. So long as crypto remains resilient in the face of hacks, monetary policy and political tailwinds, it will continue to roar back life, especially given the billions of institutional capital."
Asian headwinds for bitcoin
Over the past two months, crypto investors have been focusing on central banks' interest rate hikes and the economic fallout from Russia’s invasion of Ukraine, ratcheting back their commitment to crypto and sending prices spiraling.
But recent events in Asia and other parts of the world have also weighed on markets. They offer the latest evidence that crypto is a complex organism, global by nature and subject to the same issues and events that affect other assets. Crypto, despite the contentions of its most passionate advocates, does not operate in a bubble.
Consider events from the past week in the Asia-Pacific Rim region, which have helped keep bitcoin range-bound with support at $37,000 and resistance just under $40,000. Cryptos’ desultory performance has tracked similarly range-bound pricing in Asia’s major equity markets.
The sluggishness of these assets has come amid continued draconian coronavirus-related lockdowns by the Chinese government that have hurt growth, and a record April heatwave in India that could hinder that country’s vital agricultural exports.
Meanwhile, India’s tax department is trying to raise more money from the country’s burgeoning number of crypto investors, according to a recent report by the Economic Times. Citing two unnamed sources, the business publication said the agency could take up to 20% in taxes deducted at source (TDS) on interest earned by Indian residents on foreign platforms.
TDS is income tax on money paid at the time of a transaction, and also applies to the entities making such payments. The TDS on crypto transactions is currently 1% and is part of a new crypto tax law that goes into effect July 1.
A finance bill in April introduced a 30% tax on returns or profits made by Indians from cryptocurrency investments. Trading volumes on the country’s exchanges have since nosedived some 70% in the past month.
Additional taxes on passive investments could cause a further exodus of capital from exchanges. Some Indian entrepreneurs, such as the two founders of crypto exchange WazirX, have already moved with their families to Dubai, possibly due to its friendlier crypto regulations.
The company will maintain its official headquarters in Mumbai, but WazirX said in a statement that it wanted to give “all the company employees the option to work from anywhere, subject to their comfort and convenience unless they are required to travel officially.”
Bitcoin Downtrend Stabilizes, Resistance at $40K-$43K
Still, upside appears to be limited despite the potential for intraday price swings. For example, there has been a loss of upside momentum on the weekly chart, similar to what occurred in November, which preceded a price drop.
This time, however, the weekly chart isn't overbought. That means BTC's current price range could persist until a decisive breakout above $46,000 or breakdown below $30,000 occurs.
9: 30 a.m. HKT/SGT(1:30 a.m. UTC): Australia imports/exports (March MoM)
7 p.m. HKT/SGT(11 a.m. UTC): Bank of England monetary policy report
Securities and Exchange Commissioner Commissioner Hester Peirce joined "First Mover" to discuss why she opposes the agency's plan to add 20 new jobs to the crypto enforcement squad. Plus, Mikkel Morch of ARK36 provided crypto market analysis.
APE Surges, Sinks as Elon Musk Teases With Bored Ape Collage as Profile Picture: The collage was made by auction house Sotheby's (BID) for its auction last year of 101 Bored Apes.
Fed Hikes Rate at Fastest Pace in 22 Years, Will Start Shrinking Balance Sheet: The central bank is taking a hawkish stance as inflation is running at its highest level in four decades.
Wall Street Goes Crypto in the Bahamas: The inaugural Crypto Bahamas conference was a four-day flex of FTX’s expanding empire – with a new era of “corporate crypto” firmly on display.
'Revolution' Promised by Tron's Justin Sun Looks Like Clone of Terra's Algorithmic Stablecoin: Tron, an Ethereum competitor blockchain, is the latest to launch an algorithmic stablecoin inspired by the success of Terra’s UST. It has lofty goals for USDD, but not much else.
Algorand Scores FIFA Partnership, ALGO Price Surges: The blockchain will be a "regional supporter" for North America and Europe at this year's World Cup and an official sponsor of next year's Women's World Cup.
An Ape Ain’t Free: In Defense of Ethereum’s Fees: Pick your poison: low fees on a chain that could collapse when transaction demand outstrips blockspace (Solana), or unpredictable, sometimes very high fees on a stable chain (Ethereum).
Today's crypto explainer: 6 Top Cryptocurrencies You Can Stake: An In-Depth Guide
Other voices: The Tale of a Crypto Executive Who Wasn’t Who He Said He Was (The New York Times)
Said and heard
"In one remarkable stretch, Taiwan went 200 days without a COVID-19 case, and without China-style lockdowns. The secret sauce? Thanks to privacy-protecting encryption, citizens were happy to scan QR codes and “check in” at every restaurant, store, bar or cafe. They did this without revealing their personal data. It worked so well that Taiwan reduced the contract tracing cycle to an astonishing 24 minutes." (CoinDesk contributor Jeff Wilser) ... "Yuga Labs, for the uninitiated, is the company behind the Bored Ape Yacht Club, which remains the crypto ecosystem’s single most valuable [non-fungible token] collection. The firm didn’t even have to say what it planned to do with the money in teasing the Otherside land sale; the fact of its proximity to the Bored Apes was more than enough reason for investors to buy in. And buy in they did, in spite of a series of system-breaking failures." (CoinDesk Media and Culture Reporter Will Gottsegen) ... “There is little sign of cooling in the greatest job seekers’ market of all time. As businesses continue to face high turnover, and the gap between demand for labor and supply widens yet further, businesses will continue to experience upward pressure on wages.” (Julia Pollak, chief economist of ZipRecruiter, in The Wall Street Journal)
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