Cryptocurrencies are losing investment attractiveness, while Bitcoin is getting ready to break another low at around $41,600. This could lead to another major sell-off. Other cryptocurrencies are also collapsing. Ethereum is already focused on retesting the $3,000 level. This will create a number of additional unpleasant signals to accelerate the bearish trend. The reasons for this change in investor attitude are obvious.
This is all due to the Federal Reserve's tighter and more aggressive interest rate policy. The rapid withdrawal of liquidity by the US Federal Reserve, which is a bearish scenario for the cryptocurrency market, also raises concerns. The growth in the yield of US bonds, which is expected after an interest rate hike, is also prompting profit taking in risky assets and a reallocation of finances towards safer income streams.
Goldman Sachs predicts that the Fed will raise rates four times this year, one more than previously forecast. Economists also expect the Fed to start cutting the size of the balance sheet as early as July this year.
The fact that the US labour market is recovering more strongly than many predicted provides further evidence that the Fed will raise rates at the same time as it completes its bond-buying programme in March this year. Investors are pricing a 73% chance of a 25 basis point rate hike in March, up from 61% last week.
Concerns about the Fed's hawkish policies impacted the cryptocurrency market last year. This came after the central bank shifted its focus from maximum employment to inflation control. In December, the Fed announced at least three rate hikes by 2022's end. It also said it would terminate the asset purchase programme by March.
NFT as funding source
However, while there is panic in the market, with speculators selling off assets and big players hoarding their positions by buying them, the good news continues to support the fast-growing cryptocurrency industry. More and more supporters of the crypto industry are thinking of running for US Congress. They are raising funding for their programmes in a rather interesting way, according to the latest news.
Democrat Shrina Kurani, an engineer who's running for a House seat in California, and Republican Blake Masters, who's vying for the Senate in Arizona, have also offered their NFTs. In this way, they have supported the development of this sector and made it more attractive. Notably, NFT is released with a unique digital certificate of authenticity using the same blockchain technology that led to the creation of bitcoin. However, NFT is supposed to be stored, sold or exchanged as an asset, not as a currency.
Kurani was the first to distribute NFTs to campaign donors through a digital marketplace called SolSea. However, there has not been much demand for them. She raised only $6,610 and gave out fewer than a dozen tokens when the offer expired at the end of December. Many fundraising consultants point out that cryptocurrency is still a long way from becoming a regular source of donations, and there are still questions about how easily campaign finance rules can be circumvented.
However, Wyoming Republican Senator Cynthia Lummis, one of the crypto industry's staunchest supporters in Congress, continues to collect campaign contributions through bitcoins. She is calling for legislation to create rules and guidelines for the industry and to regulate it.
As for bitcoin's technical picture
The bulls missed the support of $41,620, which is a very significant level, where numerous players are based. In the near term, it is better to be patient and wait for a renewal of the lows of $37,380 and $33,830. A change in the market direction of the first cryptocurrency will only be possible after it moves beyond 43,200, which would open a direct path to $48,400 and $51,800.
As for Ethereum's technical picture
The bears have consolidated below the 200-day moving average, which is quite a problem for Ethereum. Trading below that level will continue to push the trading instrument lower, and a break of the psychological mark of $3,000 will lead to a larger sell-off to the lows of $2,700 and $2,440. To return demand, a breakdown of the $3,260 level is needed. This will open a direct route to $3,430, where the 200 day average passes. A break of this range would resume the bullish trend, which would lead to the highs of $3,600 and $3,900.