Crypto Market Forecast: Week of March 21st 2022

It has been a week of solid, steady gains for large-cap digital assets. Bitcoin (BTC) is up ~8% this week and has broken past the key US$40,000 price level where it has found support. The price of BTC is currently around US$41,300. In the last seven days Ethereum (ETH), and Binance-coin (BNB), the 2nd and 4th largest assets on the Brave New Coin market cap table, are up ~14% and ~6%, with Ether significantly outperforming the rest of the market.

Last week, traders turned risk-on despite the US federal reserve hiking up interest rates by 25 basis points. The Fed has revealed that it will complete 6 additional rate hikes over the rest of 2022. The US central bank has assured market observers that the economy will be able to handle the rising rates without going into a recession.

The clarity offered by the Federal Reserve in the last week likely played a part in investors returning to crypto and equity markets with confidence.

The ominous sign of an inverted bond yield curve has appeared, however, creating some concerns for long-term capital investors. The inverted yield curve is said to occur when the US 10-year government bond yield drops below the two-year yield. An inverted yield has preceded every recession in the United States since 1955.

Yields on long-term bonds are generally higher than those on short-term bonds to compensate investors for the possibility of bearish occurrences happening in the future like high inflation or a drop in GDP. A yield inversion suggests the market has low confidence in the short-term prospects of the economy.

This suggests that while BTC has just had a strong week, with many investors gearing up for a recession, the asset’s prospects may turn soon. Expect volatility in the next few weeks.

The mining difficulty of the Bitcoin network dropped for the second time in March last Thursday. Falling difficulty implies that the hashrate of the network is dropping and difficulty needs to adjust downwards to ensure that an average block time of 10 minutes can be maintained. A factor in why the hashrate of Bitcoin is falling is soaring global energy prices that may be making it difficult for small miners to maintain their profits.

Ethereum’s alpha gains last week may be due to the recent progress of the network’s major merge update. A merge to Proof-of-Stake successfully occurred on the Kiln testnet. The Kiln network’s validators are now successfully publishing blocks post-merge and Ethereum is now one major step closer to becoming a theoretically more stable Proof-of-Stake network.

Alongside the successful launch of the merge on the Kiln testnet, the amount of assets locked on Ethereum’s Proof-of-Stake beacon chain has been rising more quickly than in previous months. This suggests there is growing confidence that Ethereum’s PoS stake switch will occur successfully.

Crypto news for the week ahead

21st March and 23rd March- Dual Press conferences held by Federal Reserve Chairman Jerome Powell.

This week, Fed Chairman Powell will speak publicly twice. Once at an Economics conference and once at the Bank for International Settlements virtual summit. Last week investors ignored hawkish statements made by St. Louis Fed President James Bullard and Fed Governor Christopher Waller. If the trends continue this week, this may suggest that the market has already priced in Fed interest rate hikes for the rest of the year.

21st March – Thorchain hard fork

This Monday, Thorchain, the cross-chain liquidity network, is set to undergo a major hard fork. The hard fork is set to open the door for Rune to integrate with the Terra network and further expand its interconnectivity across blockchain layer-1s.

Top 10 Crypto Summary

It was a strong week of healthy gains for most large-cap assets in crypto apart from a few standouts. AVAX, the native token of the Avalanche network had a particularly strong week and is up over ~20% in the last week. The alpha gains appear to have been driven by a recent update that allowed the popular UST stablecoin to be borrowed and lent natively on the Avalanche chain for the first time.

Bitcoin Price Chart

It has been a bullish week of trading in bitcoin markets with the price rising quickly in the first half before slowing down as it hit the US$42,000 price level. Data provider Glassnode reports that there are a number of bullish fundamental indicators including onchain data that suggest short-term holders are holding on tight to their BTC and BTC is being moved off exchanges onto private wallets. Presently, factors are combining to signal that the illiquid supply of bitcoins is rising quickly.