Morning Crypto Briefing: Bitcoin Hits Three-week Highs, Analysts Discuss Improving Macro Backdrop

Joel Frank
Published: May 31, 2022, 11:38 GMT+00:00

Cryptocurrencies surged on Monday and are stable on Tuesday amid growing Wall Street chatter about peak inflation/Fed hawkishness.


Key Points

  • Cryptocurrencies are stabilizing on Tuesday following a bullish Monday as US traders return from a long weekend.
  • Bitcoin recently three-week highs above $32,000, as analysts discuss a potentially improving macro backdrop.
  • Cardano’s ADA is the best performing major altcoin this week, already gaining over 35%.

State Of The Market

The total market capitalization of cryptocurrency markets has stabilized close to $1.3 trillion, up an impressive roughly 7.5% so far on the week, though admittedly still within the ranges of the last two weeks. A variety of factors are being cited as helping support the most recent rebound, with analysts pointing to a seemingly improving Covid-19 situation in China that has boosted Asia Pacific equities.

Meanwhile, there is growing chatter on Wall Street about how inflation in the US might have peaked and, with it, expectations for Fed policy tightening. Indeed, in the last few weeks following US CPI and Core PCE data, bets on Fed tightening in H2 2022 and 2023 have been moderated, coinciding with a pullback in US yields from multi-year peaks hit earlier in the month. Analysts seem to think that, barring fresh inflationary shocks, there is room for these trends to continue, which could foster a more favorable macro backdrop for crypto.

Indeed, lower bond US yields reduce the “opportunity cost” of holding non-yielding assets (like crypto), and a more benign Fed tightening outlook should boost US equities, with which crypto has a close positive correlation.

Whilst all of the above is all well and good, and crypto bulls might be in a good mood as a result, the return of US market participants to the market on Tuesday following a long holiday weekend and an upcoming barrage of tier one US data releases this week will put these narratives to the test. Crypto bulls will nonetheless be on the lookout for a rebound in market cap to the $1.5 trillion area.

Bitcoin Hits Three-Week Highs Above $32,000

After breaking out to fresh three-week highs on Monday above $32,000 per token, bitcoin has stabilized in the $31,700 area on Tuesday as it awaits the entrance of US market participants following their long weekend. If recent bullish momentum can gain further traction, the bulls are eyeing a test of resistance at the $33,000 and $34,300 levels.

The recent rebound has seen bitcoin’s market cap move back above $600 billion, CoinMarketCap data on Tuesday showed. Bitcoin’s crypto market dominance, meanwhile, has remained in the 46-47% area, close to multi-month highs.

On-chain analytics firm Glassnode released an interesting report on Monday and concluded that, according to wallet activity data, bitcoin HODLers are “the only ones left” in the market and they appear to be “doubling down as prices correct below $30,000”. The recent pullback from November 2021 highs has yet to “inspire an influx of new users into the space”, the report continued, unlike sell-offs in March 2020 and November 2018, which were followed by a rise in on-chain activity that Glassnodes said “initiated the subsequent bull runs” at the time.

The takeaways from this report for traders are thus mixed. On the one hand, on-chain data is showing that buyers now would be getting ahead of the next bull market. But on the other, the lack of new buyers coming into the space may be indicative of the fact that recent pain may not yet be over.

Ethereum Fails To Hold Above $2,000

Ethereum is on Tuesday changing hands just below $2,000 per token, having failed to sustain a meaningful breakout above the psychologically important figure or its 21-Day Moving Average which resides at $1,963. The cryptocurrency has also failed to break above its recent ranges of the last few weeks.

Nonetheless, if the macro backdrop is set to continue to improve for cryptocurrencies more broadly, ETH/USD bulls will be eyeing a move higher towards resistance in the $2,200-$2,300 area. Ethereum’s market cap was last around $240 billion according to CoinMarketCap data on Tuesday.

There has been a lot of focus as of late on the falling ethereum gas fee, which reportedly hit a record low around $3.70 according to on-chain data on Tuesday, well below the $38-$52 range at the start of the year. Crypto analysts said while this should spur ethereum network usage, it isn’t necessarily a good thing, as it is indicative of unhealthy market conditions.

Some cited gas fee-intensive transactions like selling a non-fungible token on OpenSea or completing a trade on UniSwap as being at all-time lows. Analysts said the recent collapse of the Terra (classic) ecosystem sent a chill across the entire crypto/DeFi space.

ADA Already Up Over 35% This Week

The native token to Cardano’s blockchain ADA is up another 15% on Tuesday after surging over 18% on Monday, taking weekly gains to more than 35%, during which time the token has rallied from under $0.50 to around $0.65. The recent surge has seen its market cap jump to over $22 billion, making the cryptocurrency the sixth-largest in the world by market cap, according to CoinMarketCap data.

The recent surge has seen the market cap of Cardano’s ADA surpass that of Ripple’s XRP, which has slipped to seventh place by market cap. Crypto analysts cited recent reports showing over 5 million native assets (such as NFTs) have now been issued on the Cardano network, as well as hype ahead of the Vasil hardfork next month that is expected to improve the blockchain’s scaling capabilities as boosting prices.

LUNA 2.0 Surges After Binance Listing

News that the world’s largest cryptocurrency exchange Binance will list the native token of the new Terra blockchain, LUNA (2.0), sent its price surging from around $6.5 to as high as $12 before the cryptocurrency then fell back to around $8.50 on Tuesday. Binance will initiate its airdrop of the LUNA 2.0 tokens to the wallets of those holding LUNC (the old Luna token) and UST.

In related Terra news, founder Do Kwon’s company Terraform Labs is reportedly working on a new decentralized stablecoin that would be built on the Terra 2.0 blockchain. The reports were met with criticism from the Terra community who are keen for Terraform Labs to avoid past mistakes. But some were open to the idea of a decentralized stablecoin if it is backed 1:1 to the US dollar, similar to how USDT and USDC work.

Crypto Adoption: Moneygram Moving Towards Stablecoins, Draftkings Looking To Accept Crypto

Moneygram, one of the world’s leading cross-border payment services, announced on Monday that it is to partner with decentralized crypto to fiat exchange Stellar. Moneygram’s new services will reportedly allow Stellar wallet holders to send USDC to recipients, who will then be able to exchange the stablecoin for fiat through Moneygram. “We’re trying to be a bridge from the crypto world to the fiat world,” the MoneyGram CEO said.

Elsewhere, the CEO of popular US-based sports betting company DraftKings announced that the company is looking to begin accepting payments in cryptocurrency. The company is also looking to allow users to actually engage in betting using their crypto, as opposed to having to place bets in fiat.

Meanwhile, a report by Americas Market Intelligence cited by Reuters on Monday highlighted the extent of so-called “crypto penetration” in Argentina, which has reportedly now reached 12%, more than double that of Peru, Mexico and other countries in South America.

Argentina has been battling rampant inflation for around six years now and the government has imposed strict capital controls on foreign exchange services in order to manage the decline of the value of the Argentinian peso on international markets. The report highlighted how Argentines aren’t just turning to bitcoin in order to hedge against inflation, but also to US dollar-pegged stablecoins.

Regulation Update: China May Toughen Crypto Rules After Terra’s Collapse

Chinese authorities may toughen regulations on cryptocurrencies and stablecoins in wake of the recent collapse of the Terra ecosystem following the de-peg of its UST stablecoin, according to an article published on Tuesday by Chinese state-owned media outlet the Economic Daily. The article praised the Chinese government’s decision to ban crypto as having protected Chinese consumers against what it called the “black swan” event.

Elsewhere, the Russian government released a report on Tuesday estimating that crypto mining now accounts for more than 2% of the country’s electricity usage, more than the country’s agricultural sector. As a result, Vasily Shpak, the country’s Deputy Minister of Trade and Industry, called for crypto mining to be brought into the regulatory fold. Russia’s share of the global bitcoin network hash rate was 4.66% in January 2022 according to a recently released report by the Cambridge Bitcoin Electricity Consumption Index (CBECI).

Meanwhile, the Kazak government on Monday released a report detailing how much money it had raised from so-called “energy fees” on local crypto miners in Q1 2022. Only around $1.5 million was generated, but the country has nonetheless forecast that it could raise as much as $1.5 billion over the next five years. Kazakhstan’s share of the global bitcoin network hash rate was 13.22% in January 2022 according to the recent CBECI report.

About the Author

Joel Frank is an economics graduate from the University of Birmingham and has worked as a full-time financial market analyst since 2018. Joel specialises in the coverage of FX, equity, bond, commodity and crypto markets from both a fundamental and technical perspective.

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