Good morning. Here’s what’s happening:
Prices: Bitcoin rose early but later fell after Federal Reserve Chair Jerome Powell damped enthusiasm stemming from a less-aggressive rate hike with hawkish comments.
Insights: Is Dr. Copper’s recent upturn a positive sign for bitcoin?
Bitcoin Seesaws but Holds at $17.8K
Bitcoin looked primed to continue its momentum this week before U.S. central bank Chair Jerome Powell damped investors’ mood with a pointed reminder that the Fed was not finished with its monetary hawkishness even after lowering its latest interest rate hike to 50 basis points.
The largest cryptocurrency by market capitalization was recently trading at $17,811, roughly where it stood 24 hours earlier. BTC had topped $18,300 earlier in the day following an unexpected slowing in November’s inflation data and the Fed’s anticipated dovish turn. But in a press conference following the Federal Open Market Committee’s (FOMC) rate announcement, Powell returned to a months-long theme that rising prices presented the biggest threat to the economy.
“50 basis points is still a historically large increase and we still have some ways to go,” Powell said at a press conference following the FOMC statement.
Ether followed a similar pattern, rising earlier in the day before dropping to trade at $1,308, down about a percentage point from Tuesday, same time. Most other major cryptocurrencies were in the red, albeit not by much with UNI, the token of decentralized exchange Uniswap, and LINK, the token of software platform Chainlink, falling 3.2% and 3.1%, respectively.
The CoinDesk Market Index (CDI), an index measuring cryptos’ performance, recently sank 0.33%.
Equity indexes troubled by Powell’s comments closed down with the tech-heavy Nasdaq and S&P 500 off 0.8% and 0.5%, respectively. Tuesday’s consumer price index fell to 7.1%, lower than the 7.3% projected by economists responding to a FactSet survey.
The Fed’s latest rate increase the federal funds target range to 4.25%-4.5%, the highest level in 15 years. Powell has signaled that the terminal rate – the peak rate for the current hiking cycle, expected sometime next year – will likely be over 5%. The federal funds rate is the interest rate that banks charge each other to borrow and lend money.
Meanwhile, U.S. Senators Elizabeth Warren (D-Mass.) and Roger Marshall (R-Kan.) are introducing a bill to crack down on money laundering and financing of terrorists and rogue nations via cryptocurrency. The Digital Asset Anti-Money Laundering Act would bring know-your-customer (KYC) rules to crypto participants such as wallet providers and miners and prohibit financial institutions from transacting with digital asset mixers, which are tools designed to obscure the origin of funds.
Edward Moya, senior market analyst at foreign exchange market maker Oanda, noted in an email that the current Congress, which is in its final weeks, is unlikely to pass the legislation, but that “the Act would address some national security concerns as it requires crypto firms to play by the same rules that apply to banks and traditional firms.”
‘Dr. Copper’ Offers Encouragement for Bitcoin Investors
Bitcoin’s correlation with copper, which moved into positive territory following the Thanksgiving holiday, has continued to rise.
The increase is significant, given copper’s traditional link to economic health. Analysts often view copper as a proxy for growth, affectionately calling it “Dr. Copper” for its professorial ability to forecast trends. So copper doing well bodes well for the economy, which bodes well for bitcoin.
Markets have been looking favorably upon copper, with the price of its futures contract increasing 8% over the last three weeks. If historic relationships hold true, this trend would imply market confidence about U.S. economic prospects.
By contrast, bitcoin (BTC) has maintained a strong negative correlation with the U.S. Dollar index (DXY). Investors will be watching this index in the weeks ahead, particularly after the Fed’s Federal Open Market Committee (FOMC) trimmed its interest rate hike to 50 basis points on Wednesday from its previous, more aggressive 75 bps increases.
Still, Fed Chair Jerome Powell was unexpectedly hawkish in his comments following the rate announcement, reiterating long-held concerns about inflation.
Will bitcoin follow Dr. Copper’s prescription or follow the lead of the U.S. Dollar Index? The upcoming weeks will be interesting to watch.
10:00 a.m. HKT/SGT(2:00 UTC) China Retail Sales (YoY/Nov)
While Sam Bankman-Fried is remanded into custody after a Bahamas judge ruled he should be denied bail, the U.S. Senate Banking Committee had its turn probing witnesses about the FTX collapse. Rep. Ritchie Torres (D-N.Y.) joined “First Mover” to discuss the latest developments and his recent legislation targeting crypto exchanges. Also, Matt Stoller of the American Economic Liberties Project joined. Plus, 3IQ’s Mark Connors shared his crypto markets outlook ahead of today’s much anticipated Federal Reserve decision on interest rates.
Binance CEO Changpeng ‘CZ’ Zhao Warns Staff of Turbulent Times: “While we expect the next several months to be bumpy, we will get past this challenging period,” CZ said while assuring the organization is built to last.
Citi Says Crypto Market Leverage, Open Interest Are Historically Low: The bank expects a broader focus on decentralization in 2023 following this year’s failings in centralized crypto ventures.
Indian Crypto Traffic Took a Nosedive as Tax Regime Tightened: The government’s two taxes have cut usage of Indian crypto platforms, although interest in Binance has remained steady because that exchange is out of the country’s jurisdiction.
US Senators Warren, Marshall Introduce Digital Assets Anti-Money Laundering Bill: The proposal will bring know-your-customer rules to crypto participants such as wallet providers and miners.
FTX Hearing in US Senate Reveals Congress Doesn’t Have Immediate Answers: As the crypto industry’s epic disaster continues to unfold with a criminal case and regulatory actions, U.S. senators didn’t find any clear path during a Wednesday hearing.
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