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Market overview 4/12: Fed scared the markets to a downtrend

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The Crypto market is down again because of the Federal Reserve. The aggressive monetary policy of the Fed scared investors and caused a sell-off. After that, investors became worried about the new inflation numbers. All in all, there is almost nothing positive to say about the crypto prices right now.

Bitcoin’s price found support at a critical level

Bitcoin’s price is $40200 at the time of writing this article. The price was $46600 a week ago, which means we’ve seen a drop of more than ten percent. Five out of the previous seven daily candles are red. The latest one from Monday is down for more than 3000 dollars.

The graph below shows Bitcoin’s price development on daily candles. The blue line is an important 50-day moving average and the purple line is the 200-day moving average.

btc-1204

Bitcoin’s price was testing the “roof” of the channel and the 200-day moving average about two weeks ago. That point seems so far away today. The price has also fallen below the 50-day moving average.

Bitcoin has formed a clear channel pattern during spring 2022. It seems like Bitcoin’s price found its bottom at a critical juncture. The downfall stopped and reversed exactly at the bottom of the channel.

There is one important thing one should remember. Even if this channel is trending higher, the pattern is called a bearish flag. It means that there is a high probability that the price is going to exit the channel downwards.

But why is Bitcoin down so much? There are two reasons for the price fall. The first reason is the Fed. The minutes of the March Fed meeting were published last week. They give more evidence of the Fed’s willingness to fight inflation aggressively.

Federal Reserve begins reducing its balance sheet at the same time it is raising interest rates. This reduction is called QT (Quantitative Tightening) and it’s the opposite of QE. At the same time, Fed officials are signaling a strong will to raise interest rates. This kind of environment is toxic for growth stocks and cryptocurrencies.

As we have mentioned many times, Bitcoin’s price is highly correlated with the stock market. A popular metric is a 60-day correlation. It is reaching record levels at the moment.

There was more bad news yesterday (Mon 11.4.). The White House press secretary Jen Psaki was shouting warning signals about the upcoming inflation figures. The latest CPI number will be released right after this article is published. We’ll update the information here once it’s out.

Jen Psaki described the inflation as ‘extraordinarily elevated’ and pointed the finger at Vladimir Putin. The market consensus is 8.4 percent for the March CPI. This is a year-over-year number, so it describes how much inflation has grown compared to March 2021. The February number was 7.9%.

Update 4/13: The march CPI came out at 8.5% which was very close to the market consensus.

Inflation is at record levels also in Europe. We are talking about the highest CPI numbers since the 1980s. High inflation is a problem because it forces central banks to do something about it. This means raising interest rates and less liquidity in the market, which is bad for stocks, and therefore, bad for cryptocurrencies.

We are repeating the old message again here. Even if there are positive signals inside the crypto market, they are run over by macro issues. There are still lots of uncertainties and headwinds in the market.

No significant moves in the altcoin market

Let’s take a broader look at the crypto market. Bitcoin’s dominance hasn’t made a significant move, which means that altcoins have followed Bitcoin down. The situation was different a week ago. Altcoins resisted and had significant gains against Bitcoin. Now, this positive development has reversed.

Below is a list of the top 15 cryptocurrencies with their price-performance against Bitcoin (24h, 7d, 30d).

alts-1204

When we exclude stablecoins, there are two cryptocurrencies with any gains against Bitcoin: BNB and Dogecoin. Even these two have recorded very modest gains (less than 10%).

BNB might have been boosted by Binance’s achievements in the Middle East. The largest crypto exchange in the world recently received a license to operate as a virtual asset provider in Abu Dhabi. Binance had a similar permit a month ago in Dubai and Bahrain as well.el

There haven’t been any major developments in Dogecoin recently. It’s probably up because of Elon Musk, once again. The richest man on the planet made recently a 3-billion-dollar investment on Twitter and became its largest shareholder.

Musk has been active on Twitter lately and tweeted about possible features. Some analysts (and DOGE fans) are speculating that Musk could make Dogecoin a tipping currency of Twitter. There is nothing concrete about such a feature yet. Musk has also proposed that the Twitter Blue account could be paid with Dogecoin.

There is nothing significant going on in the top 100 list either. The past seven days have been weak for the entire market.

One project that stands out is Stepn. We mentioned this project also last week. Its GMT token is up 21% against Bitcoin. The good old Monero has made even more gains, over 24% against Bitcoin. Monero is probably boosted by the recent Monerotopia conference.

DeFi liquidity is down as expected

TVL (Total Value Locked) describes the total liquidity of the DeFi sector. It was up last week even if the price of Bitcoin was down. Hence, the TVL was clearly correlated with the altcoin market. This week the DeFi sector hasn’t escaped the general downtrend.

TVL has dropped from 236 billion dollars to 210 billion dollars in one week. It is close to the fall of the entire crypto market. You can find the up-to-date figures at defillama.com.

defi-1204

Nothing is going on at the protocol level either. We haven’t seen any position changes in the top 10 list. Instadapp is the only top-ranked protocol with a positive TVL development. All other protocols have lost liquidity.

When we look at the monthly column, it is still showing mostly green color. But the past week was a very weak one in the DeFi sector.

defi-prot-1204

The boring trend continues at the blockchain level. We haven’t seen any position changes in this ranking list either. There is just one blockchain at the top 16 rankings with positive TVL development. That is Near protocol. You can read more about this project from our in-depth beginner’s guide.

Each of the top 10 blockchains has lost liquidity.

defi-chains-1204

There is one thing we want to emphasize here. Even if Cronos has lost TVL, it is the best-performing blockchain. Cronos has been the best or the second-best blockchain for many weeks now. This is clearly shown in the monthly column.

Cronos is the smart contract platform built by Crypto.com. It was launched about six months ago, in November 2021. The growth rate of the Cronos DeFi is impressive when considering the young age of the ecosystem. It wouldn’t be shocking to see Cronos in the top 6 soon.

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