Crypto Market Update: Political Uncertainty and Fed Policy Drive Volatility

London: 30 August 2024 (TraderMade): The past two weeks in the cryptocurrency market have been a mix of significant corporate moves, regulatory developments, and geopolitical events, all contributing to the evolving landscape of digital assets.

Goldman Sachs' revelation of a $419 million stake in spot Bitcoin ETFs and the positive weekly flows into spot Ether ETFs for the first time since their launch signal strong institutional interest in the crypto space. The Ethereum blockchain also saw a notable drop in median gas fees, reaching a 5-year low, which is positive for the network's usability.

On the regulatory front, US Senator Chuck Schumer promised a crypto bill for 2024, contingent on a Kamala Harris presidential victory, adding a layer of political intrigue to the market dynamics. In addition, the IMF's consideration of raising electricity prices for crypto mining and AI by 85% has stirred concerns about the future cost structures of these industries.

The arrest of Telegram founder Pavel Durov in France and the ensuing drop in the TON cryptocurrency highlighted the ongoing regulatory and legal pressures within the industry.

Key Takeaways

• Bitcoin and Ethereum see mixed movements amid institutional interest and US election uncertainties.
• Fed's dovish signals and geopolitical tensions contribute to market volatility, with opportunities in structured products.

In broader economic news, US annual inflation slowed to 2.9% in July, the lowest since 2021, which was met with a mixed response. Meanwhile, the UK's inflation figures came in lower than expected, boosting rate-cut bets and driving economic expansion by 0.6% in the second quarter.

Fed Chair Jerome Powell's reaffirmation of the Federal Reserve's commitment to a 2% inflation target at the Jackson Hole symposium suggests that further rate hikes could be on the horizon, despite the dovish tone regarding potential cuts in September.

BTCUSD Analysis

Bitcoin's price has been a rollercoaster over the past fortnight, with initial compression into a wedge followed by a breakout to the upside. The price has remained within a tight range, reflecting the mixed market sentiment.

The disbursement of approximately 140,000 BTC from Mt Gox and additional disbursements from the Genesis administration has introduced significant orderflow pressure, which has kept the price somewhat muted.

The upcoming US election is a crucial factor influencing Bitcoin's medium-term outlook. While Trump is considered favourable for crypto, Harris' potential presidency is being closely watched by the market, especially after her statements about "resetting" relations with the crypto space.

This political uncertainty, combined with dovish signals from the Fed and ongoing geopolitical tensions in the Middle East, has made for a volatile but overall positive market outlook for Bitcoin.

Key Levels

• Support: 55,000
• Resistance: 66,000, 72,000, 73,794 (ATH)

ETHUSD Analysis

Ethereum's performance over the past two weeks has mirrored Bitcoin's, with the added complexity of the US election's potential impact on crypto regulations.

The launch of a staking ETF could change the risk allocation dynamics in the listed crypto space, but for now, Ethereum remains under some pressure relative to Bitcoin. The technical setup suggests a potential move higher, particularly if geopolitical risks subside.

Key Levels

• Support: 2,100
• Resistance: 2,800, 3,600, 4,000

Spot and Derivatives Desk Insights

Spot trading activity was balanced, with USDT trading above par most of the time, despite the volatility brought on by the Jackson Hole symposium and the ongoing rise in the AUD. The slight pickup in major crypto trading, particularly BTC and ETH, suggests growing interest as the market digests the recent dovish signals from the Fed.

On the derivatives front, BTC and ETH futures basis rates remained relatively stable, with a slight bias toward puts in the front-end skew for both assets. This reflects a cautious market sentiment, with traders seemingly preparing for potential downside volatility, even as the broader market remains buoyant.

BTC's 90-day annualized basis rate is currently sitting at 9.7%, while ETH's is at 7.7%. The volatility premium in ETH options suggests that traders see more near-term risk in Ethereum compared to Bitcoin, potentially offering strategic opportunities for those looking to capitalize on these dynamics through structured products.

Conclusion

The past fortnight has been marked by a mix of institutional movements, regulatory developments, and macroeconomic shifts that have kept the crypto market on its toes. As we move forward, the interplay between these factors, particularly the US election and Fed policy, will be critical in determining the market's direction. Traders and investors should remain vigilant as the landscape continues to evolve with each passing week.