According to Johnny Qiang, Senior Researcher at Deepcoin crypto exchange, the cryptocurrency market’s focus now depends on the U.S. economic condition and the Fed’s decisions.
“On September 13, the cryptocurrency market experienced a huge dump right after America announced the consumer price index (CPI) for August. The annual inflation rate eased for the second month in a row from 8.5% in July to 8.3% in August, while still remaining above market forecasts of 8.1%. The market reaction to such CPI data was negative. The Dow Jones, Nasdaq, and S&P 500 indexes fell by 3.94%, 5.16%, and 4.32%, respectively. Apparently, although U.S. consumer prices rose more slowly in August than a year before, inflation pressure is still at a high level and far from the 2% inflation target set by the Federal Reserve. Thus, it’s probable that the Fed will raise interest rates by a larger margin than anticipated at the September meeting,” says the expert.
Johnny Qiang believes that the correlation between the stock and crypto markets has become increasingly positive. As such, the BTC/USDT pair on Binance fell from the $22,000 level to a little more than $20,000 within several hours on September 13, 2022. The main cryptocurrency even hit a low of $19,860.
“It seems that the crypto market has returned to a steady state after the “bloodbath.” However, it’s not easy to anticipate the next step in the short term. Global economies are in an unstable recovery stage following the global pandemic. Many risk factors can trigger a recession, including high inflation, a war in Eastern Europe, energy shortages, and so on.
Suppose the Federal Reserve increases the target rate by 100 bps at its September 21 meeting instead of the commonly agreed 75 bps. It’s highly probable that both the stock market and the crypto market would open another downward spiral in such a situation. Ultimately, there are rarely any fundamental signals that can support a new bull market for crypto-assets now,” the expert predicts.
Johnny considers that too many potential risks can trigger a worsening situation in the crypto market. To protect against such “falls,” it’s recommended to use defensive investment strategies. Aside from holding low-volatility assets, investors can open several hedge positions to control risk.
“The U.S. Fed meeting is a critical event for both traditional and cryptocurrency markets. The U.S. core CPI, which subtracts food and energy, rose 0.6% in August compared to July. The annual core inflation rate went from 5.9% to 6.3% in August. Thus, it’s reasonable to argue that core prices are still under high inflationary pressure, although headline inflation has peaked. Any decision or opinion above the Fed’s hawkish expectation may lead to large volatility in the crypto market. Optimistically, the cryptocurrency market may keep fluctuating around current levels without further significant losses over the next 3-4 weeks. However, we don’t have strong confidence that the markets will be so calm during this period,” concludes Qiang.
