Crypto Market Forecast: Week of December 12th 2022

A much needed quiet week in crypto ended with the market’s large-cap assets moving marginally. Bitcoin (BTC), and Ethereum (ETH), end the week up ~0.9% and ~0.2% respectively. Binance-coin (BNB), and XRP (XRP), end the week down ~0.2% and ~1.1% respectively. All eyes are now on two major macro events in the coming week that are likely to have some impact on price.

On December 13th, the House Financial Services Committee will hold the first part of a hearing titled “Investigating the Collapse of FTX.” The hearing is set to feature testimony from maligned former FTX CEO Sam Bankman-Fried (SBF). SBF announced that he would make an appearance on Twitter and said he would be limited in the information he would be able to provide because he does not “have access to much” of his personal and professional data.

The Senate Banking Committee is set to have its own hearing the next day but it is not clear whether Bankman-Fried will testify. The Committee has threatened to subpoena him if he doesn’t testify.

“FTX’s collapse has caused real financial harm to consumers, and effects have spilled over into other parts of the crypto industry. The American people need answers about Sam Bankman-Fried’s misconduct at FTX,” said Senate Banking Committee Chairman Sherrod Brown (D-Ohio) and Pat Toomey (R-PA), the Banking Committee’s leading Republican.

It appears after some back-and-forth, public discussions between House Financial Services Chair Maxine Waters and SBF have reached a point of civility. The Senate Banking Committee appears to be less forthcoming.

The Federal Reserve’s Federal Open Market Committee (FOMC) meeting is set to occur on Wednesday, December 14. At the meeting, the market will find out what happens next to interest rates in the United States.

It is expected that the Fed will deliver a smaller rate hike than in previous months. Signs point to a 50 basis points (0.5%) increase, after four consecutive monthly hikes of 75 basis points. The Fed is now beginning the process of a ‘soft landing’. This means that it will attempt to reduce inflation using interest rate more gradually and without triggering a recession by slowing down the economy too quickly.

A lower interest regime should benefit asset classes like crypto in the short term because it makes capital cheaper and encourages investment more than saving. A less constricted economy should also allow consumers to spend more. This reduced interest rate hike, however, has been long anticipated and may already have been priced in. A price reaction from the FOMC may only happen if there is a left-field decision or surprise statements during the announcement press conference.

Crypto news for the weeks ahead

13-14th December

Sam Bankman-Fried, requested by Congresswoman Maxine Waters (D) and Congressman Patrick McHenry (R) will testify to the US House Committee on Financial Services.

13 December

The US Bureau of Labor Statistics will release its Consumer Price Index (CPI) numbers for the month of November. This is a key indicator the Fed will look to when it considers even further rate hikes going forward.

14 December

The Federal Open Market Committee (FOMC) will be meeting. Possible additional interest rate hikes will be announced. Markets are presently leaning towards a fifth interest rate hike but to pivot away from the previous four consecutive 75 bps hikes to 50 bps.

Top 10 Crypto Summary

It has been a week of negligible price changes for Brave New Coin’s top 10 digital assets by market cap. The biggest story in the altcoin market was the surge of the beleaguered FTT token, the native token of the FTX exchange. The price jump happened after SBF showed support for a token revival plan put forward by crypto influencer Ran Neuner. Neuner’s proposal asks for FTT to be reissued as a debt token where future profits on the FTX exchange to be redistributed to creditors and depositors of the exchange. FTT is up 20% in the last 7 days.

There are numerous issues with this plan. Fixing a token by issuing a new token is something that projects like Terra have tried to do (unsuccessfully) in the past.In addition, it is unclear if FTX could even do this, given it is currently operating under Chapter 11 bankruptcy protections.

Bitcoin Price Chart

Data from Onchain analysis firm Glassnode implies that Bitcoin sellers may be a point of exhaustion. Over the last 365 days, a total of US$213 billion in realized loss has been locked in by Bitcoin investors. This compares to US$455 Billion in profits made during the 2020-2021 bull cycle. This is a similar ratio to what was observed during the 2017-2018 bull cycle and the sell down during the 2018-2019 bear period.