Crypto token prices are absorbing the latest developments on the macro and geopolitical fronts
NEW YORK, NEW YORK, U.S., Aug. 5, 2022 /EINPresswire.com/ — ALT 5 Sigma Inc. is a global fintech company developing next-generation blockchain-based technologies for tokenization, trading, clearing, settlement, payments and provides insured custody of digital data instruments publishes its Digital Assets Weekly.
• Bitcoin and Ether continue to trade constructively, building on gains from June lows
• Better news on the macroeconomic outlook could also lead to further Fed tightening
• Geopolitical tensions flared this week and could impact risk appetite and crypto prices
• News highlights include new US legislation on crypto and a move by the public pension fund towards crypto yield cultivation
Summary:
Sentiment around the macro backdrop has improved somewhat, at least on the US outlook given less hawkish messages from the Fed and better readings from the latest US data. However, the outlook in Europe remains bleaker, while geopolitical risks have flared up in Asia in a way that could be more problematic for risk appetite – and crypto token prices – if they continue or worsen.
There have also been notable developments in the digital assets space, including a further expansion of crypto acceptance among institutional investors, as well as a new attempt in the US Congress to define some regulatory boundaries for Bitcoin and Ether. For their part, Bitcoin and Ether have weathered these developments fairly well and continue to trade in the constructive pattern that has been established over the past month.
Better data on US growth…
Financial markets’ broader attention remains focused on the balance between still very high inflation and the risk of a recession, a balance further complicated by the fact that the two conditions are not mutually exclusive.
For the past week, the US ISM manufacturing and services indices both fared better than expected and remain above the 50% boom/bust level that separates a growing economy from a contracting one. These surveys are often used as leading indicators of future economic growth and therefore exert some influence over market participants and it is important to monitor them.
…and surprising strength in the job market
The US July jobs data also showed continued strength in the job market, with wages and salaries rising by 528k, twice as much as expected, the unemployment rate falling to 3.5% from 3.6% and rising sharply of hourly wages by 0.5% month-on-month. Maintaining the y/y rate at 5.2%. In short, the job market remains tight, and this has multiple implications for risk appetite and, by extension, crypto assets.
Good economic news is welcome…for the most part
On the positive side, a tight labor market shows some degree of underlying strength in the economy. The high level of employment supports consumption, which accounts for about two-thirds of total economic growth. It also counteracts growing concerns about an impending (or current) economic recession. And while the recession debate will linger, the latest data points to a stronger performing economy. Other things being equal, this leads to better investment returns, a condition that should also be positive for crypto assets.
But if the Fed tightens further, it could challenge risky assets, including crypto
On the less positive side, a stronger labor market, including higher wages, suggests inflation may remain high for longer. And that could argue for more Fed tightening than the market is currently expecting, especially after those expectations were scaled back after last week’s dovish messages at the FOMC meeting.
This was indeed the first reaction to the payrolls data, with US 2-year Treasury yields rising 20 basis points, factoring in some of these risks. If Fed tightening expectations increase on a sustained basis, it will likely weigh on risky asset prices (e.g. Nasdaq), creating headwinds for crypto token prices in the process.
US inflation data a focus next week
The week ahead will focus on the August 10th US CPI report. Consensus forecast sees CPI slipping to 8.8%y/y from 9.1% in June, partly due to lower energy/gasoline prices. This result would go in the right direction. However, it is still at exceptionally high levels and is consistent with “some” additional tightening by the Fed. And the outcome of the CPI data will be the next guidepost for both the market and the Fed to assess the future magnitude and pace of rate hike expectations.
Geopolitical risks in Asia could have knock-on effects on financial markets
Geopolitical risks increased this week after US House Speaker Pelosi visited Taiwan amid formal and vocal protests from the People’s Republic of China (PRC). As a result, the PRC launched large-scale military exercises near Taiwan, an event that not only heightened military tensions in the region but also highlighted the risk of a more problematic turn in US-China relations in the future.
A further escalation of US-China tensions could indeed have negative spillover effects on financial markets. At the very least, such incidents can lead to a reduction in risk appetite and a “flight to quality” in financial markets, which would likely have negative spillover effects on crypto assets. In addition, it might as well [further] exacerbate existing disruptions in the global supply chain and hamper economic growth. And that too would be generally negative for the investment climate with potential impact on crypto assets.
Price action in bitcoin and ether
Amidst all of these factors, crypto token prices have actually been trading relatively more steadily as of late and remain in the constructive pattern that has been developing over the past month plus. Bitcoin continues its slow uptrend, establishing a series of higher highs and higher lows since its cycle bottom in June. Ether briefly traded above the $1,700 resistance level we’ve marked for the past few weeks, defined by the top of the June gap ($1,700-$1,250). It is testing resistance at the 100-day moving average at $1,685 and a sustained break above it would reinforce the short-term upside of the token price.
The latest US legislation would address the SEC-CFTC turf war over Bitcoin and Ether
In Washington, a new law in the Senate would designate bitcoin and ether as commodities and therefore place them under the oversight of the Commodity Futures Trading Commission (CFTC). The chances that this will actually be enshrined in law are not yet certain. But if that happens, it would end the current turf war between the CFTC and the Securities Exchange Commission (SEC) for regulatory oversight of these important crypto tokens.
A public pension fund is getting into crypto yield farming
Separately, there was another important step on the way to greater acceptance of crypto assets by institutional investors. In Virginia, the Fairfax County Pension Fund has started investing in crypto lending platforms to boost returns. The fact that the pension fund is for public sector workers makes it all the more important in legitimizing crypto investing and crypto as an asset class.
Robert Lynch
Head of Research and Strategy
ALT 5 Sigma Inc.
[email protected]
alt5sigma.com
ABOUT ALT 5 Sigma
ALT 5 Sigma is a global fintech offering next-generation blockchain-based technologies for trading, clearing, settlement, payment and insured custody of digital instruments. ALT 5 was founded by financial industry professionals out of a need to provide security, accessibility, transparency and compliance to the digital asset economy. ALT 5 offers its clients the opportunity to buy, sell and hold digital assets in a secure environment equipped with financial industry best practices. ALT 5 Sigma products and services are available to banks, broker-dealers, funds, family offices, professional traders, retailers, digital asset exchanges, digital asset brokers, blockchain developers, and financial information providers. ALT 5’s Digital Asset Custodian Services are secured by Fireblocks.
DISCLAIMER:
Digital Assets Weekly is for informational purposes only and does not represent, express or imply, the provision of any service or product by ALT 5 Sigma (“ALT 5”). Investors should make their own determination as to whether a particular service or product is appropriate for their investment needs, or get professional advice for your specific situation. ALT 5 Sigma. makes no representations or warranties to any investor as to the legality of any investment, the income or tax consequences, or the suitability of any investment for such investor. ALT 5 Sigma does not solicit or provide financial advice. This is at the sole discretion of the individual.
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August 5, 2022 at 19:07 GMT
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