Crypto Market Forecast: Week of April 4th 2022

It was a week of low volatility in the Bitcoin (BTC) markets, while some altcoins enjoyed significant gains. BTC is up ~1% in the last week. Ethereum (ETH), and Binance-coin (BNB), the 2nd and 4th largest assets on the Brave New Coin market cap table are up ~9% and ~6% respectively. Other large caps, Solana (SOL) and Terra (LUNA), are up ~32% and ~23%, in the last week.

The digital asset markets reacted mildly to the United States releasing solid but middling employment data on April 1st. Data indicated that while the unemployment rate in the country is dropping towards pre-pandemic levels, the economy only added 431,000 new payrolls, less than a composite estimate of 490,000 from Dow Jones but above some lower-end estimates.

The consensus from market observers was that this data was in line with expectations. “All in all, nothing shocking about this report. There was nothing that was really surprising,” Simona Mocuta, chief economist at State Street Global Advisors told CNBC. “Even if this report came in at zero, I would still say this is a very healthy labor market.”

Investors are still digesting the job market data and assessing whether it will lead to a more aggressive monetary policy switch from the Federal Reserve.

With US dollar inflation rising rapidly and the job market looking healthier, the pandemic-era Dovish monetary policy implemented by The Fed is no longer viable. Many have called the Fed’s policy of ultra low-interest rates and high stimulus, the loosest approach in history. If continued, it would likely cause the economy to overheat and push inflation to unmanageable levels.

A switch to higher interest rates and zero stimulus will likely lead to asset prices dropping across the board. Without the support of accommodative policy, some investors may switch to risk-off and this will create volatility across the capital markets.

The Fed will try its hardest to ‘soft land’ the economy and not shock markets by hiking up rates too quickly. Many market observers, however, are uncertain that this will be possible given the historically high inflation rates and other factors such as the global supply chain disruptions caused by the Ukraine conflict.

For digital asset investors, while the prospects of a recession in the USA may be unnerving, there are signs that the asset class may be divergent. Onchain data indicates that the illiquid supply of Bitcoin is close to all-time highs. Despite an uncertain macro environment, long-term BTC holders are digging their heels in and reducing the number of coins available for trading. This supply shock has been creating positive pressure.

In the altcoin market, with projects like Ethereum (ETH), and Solana (SOL) hitting key development milestones and exciting integrations investors are willing to allocate capital towards these projects despite the macro-level uncertainty. Sol’s strong gains in the last 7 days were driven by a confirmation that OpenSea, the largest NFT marketplace in crypto, will launch on the Solana chain.

Crypto news for the week ahead

April 6th-9th – Bitcoin 2022

One of the largest cryptocurrency conferences ever takes place in Miami. A blockbuster list of speakers at the event includes President Nayib Bukele, Cathie Wood, and Jordan Peterson. Last year at the same conference Bukele and Jack Mallers made major announcements surrounding the adoption of BTC in El Salvador. Similar fireworks are expected at this year’s conference from Bukele and others.

6th April – Federal Open Market Committee’s (FOMC) March meeting minutes released

Following the release of solid but unspectacular job data from the US, all eyes will be on the recording of a Fed meeting that took place between March 15-16 for any hints about how America’s central bank may choose to approach policy in the coming months. This meeting will also reveal the thinking behind the first interest rate rise since 2018 which was implemented in March 2022.

Top 10 Crypto Summary

It was a strong week for many large-cap altcoins, continuing a strong month. ETH is up ~8% in the last week backed by healthy fundamentals. On March 28th, the CME Group announced that it would be offering options for micro Ether futures contracts, allowing smaller investors a cost-effective way to gain ETH exposure. Also last week, Google searches for “Ethereum merge” hit a new all-time high.

Bitcoin Price Chart

For the last week the price of BTC ranged between US$44,000 and US$48,000 suggesting these may be key levels of support and resistance in the short term. Data from Glassnode reports that the capitulation of short-term holders who bought BTC when the price was at all-time-highs in late 2021 may be over. This suggests there will be a drop in selling pressure in the near term.