Crypto Market Forecast: Week of February 20th 2023

Apart from an isolated blip, it has been an excellent week of trading for digital asset markets. Bitcoin (BTC) is up by an impressive 11.4% this week. The second largest asset by market cap in the ecosystem, Ethereum (ETH), is up ~9.4%.

Despite higher-than-expected inflation and looming SEC regulation of the industry, the price of Bitcoin soared early last week. Between Tuesday and Thursday, the price of BTC jumped by 13.1%, with investor optimism shaking off potentially bearish macro headwinds.

On February 14th, the US Bureau of Labor Statistics released the Consumer Price Index (CPI) for January. It showed prices rising annually by 6.4% as opposed to the predicted 6.2%.

Despite the higher-than-expected inflation in January, the rate of inflation has dropped between 9.1% to 6.4%. This suggests that inflation has already peaked in the United States and investors may back a narrative that the U.S. economy is cooling off.

The higher inflation rate has also led to higher borrowing costs. Since March 2022, the US fed funding rate has risen from 0.25% to 4.75%. These higher borrowing rates appear not to be deterring spending in many sectors of the U.S. economy.

Data indicates that U.S. Retail Sales increased by their highest rate in nearly two years in the last month. The strong results come after two straight months of growth. One of the key drivers of the strong numbers has been the purchases of motor vehicles.

There may be an element of a ‘relief rally’ this week. Markets may be hoping that regulators in the U.S. will cool off after the fines and investigations of major American crypto companies Kraken and Paxos.

In addition, Bitcoin fundamentals are leaning strongly bullish. Bitcoin’s hashrate is on a significant upward trend and has pushed past 300,000,000 TH/s. A higher hashrate means that the Bitcoin network has higher security and is more protected from 51% attacks.

This has coincided with the launch of the new Ordinals digital collectible boom on the Bitcoin network. TheOrdinals protocol is an innovative new protocol that allows Non-fungible Tokens (NFTs) to be stored on Bitcoin.

Ordinals differentiates itself from other NFT projects tied to Bitcoin because it directly inscribes text and images onto satoshis on Bitcoin without needing a sidechain or additional token. There are well over 10,000 new Ordinal mints happening every day. This is pushing up Active Addresses, Miner revenue, Taproot transactions, and many other key Bitcoin metrics.

Alongside Bitcoin’s strong fundamentals, other projects in the crypto sector are flourishing. The usage of Ethereum layer-2s has soared in the last month, and staking numbers are being buoyed by the upcoming Shanghai hard fork.

The temporary blip for markets last week was likely driven by suggestions from two leading Fed policymakers that interest rates will rise. Alongside news that the SEC is back with another lawsuit, this time it will be suing vilified former Terraform labs CEO Do Kwon.

Crypto news for the weeks ahead

24th February

Personal Consumption Expenditure (PCE) – the most popular Fed measure for rising prices in an economy – is set to release on Friday.

March 2023

Ethereum’s next major upgrade since the Merge, the ‘Shanghai’ hard fork, will allow stakers to withdraw staked ETH, which presently remains locked.

Q1 2023

The minutes from the Federal Open Market Committee’s (FOMC) meeting at the end of January are set to be released on Wednesday. It will provide key insights into why the US Central Bank raised rates by 0.25%.

Top 10 Crypto Summary

It has been a strong week for altcoin and large-cap assets. Polygon (MATIC) continues to surge up the charts. The asset is up ~96.1% year-to-date. A key factor in the asset’s ascent is the platform’s growing popularity as a venue to launch NFTs. Starbucks Odyssey was launched in December. The coffee giant’s loyalty stamp program has seen 100s of swaps and hundreds and thousands of dollars of daily trading volumes.

Bitcoin Price Chart

Data from Glassnode reveals just how much of a fundamental impact the Ordinals protocol is having on the Bitcoin network. It has increased the average block size on the chain by over 100%, this is a bigger impact than key network updates such as Segwit. It is also changing the nature of transactions with far more using Taproot than ever before because of Ordinals.