Crypto Market Forecast: Week of December 20th 2021

It was a bearish week of trading for digital assets as risk markets continue to grapple with negative macro headwinds. Bitcoin (BTC) is down ~7% this week to trade around the ~US$47,000 price level. Ethereum (ETH), and Binance-coin (BNB), the 2nd and 3rd largest assets on the Brave New Coin market cap table, are down ~5%, and ~7% respectively this week.

Last week it appeared the accelerated United States Federal Reserve taper announcement may have been priced in, with the market trading green in the days following the news. This appears to have been something of a bull trap, or false buy signal, with both the stock and crypto markets dropping over the weekend.

Federal Reserve Chairman Jerome Powell announced on December 15th that more quickly than initially signaled the Fed would be slowing down the rate at which it was buying treasuries and mortgage-backed securities. These purchases were designed to provide corporate America with support during periods of economic slowdown caused by the coronavirus pandemic.

The trade-off of this dovish monetary strategy has been a rapidly rising rate of inflation. Inflation data released in the United States indicated that the rise in prices of consumer goods between November 2020-November 2021 was 6.8%, the highest jump since May 1982. Inflation cripples the consumer purchasing power and can be disastrous if allowed to spiral.

The Fed says it will double the previously announced pace of the taper. It will scale back the purchases of Treasuries and MBS to US$30 billion a month. In addition, the program is set to conclude in early 2022 as opposed to mid-year.

Bitcoin and the digital currency market has succeeded in 2021 partly because of its appeal as an inflation hedge. Bitcoin, thanks to its limited supply and decentralized network, has been endorsed this year by major Wall Street players like Michael Saylor and Paul Tudor Jones. They have backed BTC as a key investment during an inflationary dollar environment.

A faster taper means a slower rate of inflation and less reason to hold Bitcoin in the short term. The unfettered money printing of America’s central bank has contributed to Bitcoin’s blockbuster year. With the Fed now deciding to give the printer a break for a while, investors may be coming to the sobering realization that a key macro tailwind will no longer be driving markets.

Within crypto markets, we are observing a sharp spike in the number of daily stablecoin transfers. This implies that crypto natives are seeking safety from the volatility and downside risk of crypto through the relatively safety of stablecoin holding and stablecoin yield programs offered by platforms like Curve.

There may be a silver lining for crypto investors yet. Brave New Coin lead analyst Josh Olszewicz says there may be a bullish technical falling wedge pattern forming for BTC.

Trading set-ups for the week

Pro trader Josh Olszewicz explores trading options and signals for BTC and ETH – and lays out the trading setups he’s watching for the upcoming week. Start your week off right with Josh’s thoughts on trading strategies on a weekly basis.

Bitcoin, ALTs and Ethereum – Trading setup for the week of the 20th of December 2021

Crypto news for the week ahead

20th December- FTX will list Polkadot (DOT)

Popular international exchange FTX will launch markets for DOT, the native token of the Polkadot network, this Monday. Trading for DOT/USD, DOT/USDT, and DOT/BTC pairs will open on 20th December at 14:00 (UTC). Polkadot (DOT) is a smart-contract-powered blockchain ecosystem designed to be scalable through a shard-based architecture. Development of the network has progressed significantly in 2021 and DOT is up ~367% this year.

21st December- Kraken will list Avalanche (AVAX)

Popular international exchange Kraken will launch markets for AVAX, the native token of the Avalanche network this Monday. AVAX will launch for trading with Euro and US dollar pairs on December 21st at 15:00-16:00 UTC. Avalanche is a smart contract platform noted for its accessible cross-chain bridging capabilities and cheap, high-speed consensus. AVAX is up ~27% in the last week, showing significant alpha compared to the rest of the crypto market.

Top 10 Crypto Summary

Apart from a few standout Layer-1 chains such as Solana (SOL), and Terra(LUNA), large-cap assets on the Brave New Coin market cap table traded red and bearish in the last week. The total value of assets locked into the Terra blockchain has soared in the last week. TVL is up ~42% in the last week and continues to push all-time highs. The LUNA token is burnt if the demand for the USdollarTerra (UST) rises. With the demand for stablecoins rising, LUNA is being burnt more rapidly to create new UST supply. This supply shock may be pushing up the price of LUNA.

Bitcoin Price Chart

The price of Bitcoin has bled steadily for much of this week. Data from Glassnode indicates that a major factor in this price has been an unprecedented amount of selling from Asian traders, indicated by the change in price during Asian trading hours. A silver lining appears to be that Europe and the US appear to be buying steadily but not enough to compensate for a bearish Asia.