A bearish Crypto market cannot cause macroeconomic shocks, but a sluggish economy can adversely impact the Crypto market. Studies are showing a high correlation between Crypto and traditional finance. With some investors regarding digital assets as tech or other volatile stocks, the financial and Crypto markets are intertwined, and the trends in one market are replicated in the other.
The US Bureau of Labor Statistics announced last week that year-over-year inflation had hit 8.6% in May, which is the highest in 40 years. Following the announcement, the selloffs in the Crypto market have increased, putting downward pressure on the volatile process.
The Crypto market capitalization is now at $1.1 trillion, and the trend indicates that this may plummet in the short term if the inflation perpetuates.
The Bitcoin and Ethereum Are Trading Below Their Support Levels
The support level for BTC is $30,000. According to Nikolaos Panigirtzoglou, a strategist at JPMorgan, the largest Crypto is undervalued as its fair value is $38,000. Hence, the current price of $28,023 means that the BTC will continue trading at a low value in the short term with a minimal chance of recovery. Week-on-week, Bitcoin has shed off 6% of its value, and it will start the trading week at a new low.
Ethereum, on the other hand, has experienced a steeper decline week-on-week with a 15% plunge. ETH is trading at $1,500, which is way below its support level of $2,000.
Apart from Stablecoins such as Tether, Altcoins are also on a downward trajectory as capital injections in the Crypto market get tight as the global economy falters under the weight of high energy and food prices.
The Short-Term Outlook is Grim
Following the rising inflation, the Federal Reserve is expected to tighten the monetary policy by raising the benchmark rate. The board is expected to convene a meeting on Tuesday and deliberate the way forward as American citizens continue to decry the increased cost of living. The meeting will be concluded on Wednesday, and monetary analysts predict that the Reserve bank may hike the lending rate by 0.75%-1%.
If the rate is increased, the Federal Reserve will mop up liquidity in the market leading to a capital crunch. This will reduce the buy-orders in the Crypto Market, and the selloffs will dominate transactions leading to downward pressures in the market.
It Is Time to Buy
The Co-founder of ShapeShift- a platform that offers self-custody solutions for hodlers, believes that the Crypto bears will continue in the short term. Jon believes that the market is oversold and undervalued; hence ideal for investors who want to maximize and diversify their wealth portfolios. The Crypto enthusiast adds that the prices will continue trading in the red. Lark Davis advises investors to take advantage of the bear cycle to invest in digital assets.