Crypto markets have seen impressive gains this year, with Bitcoin (BTC) prices up 87% and Ether (ETH) up 64%. Anchored Volume Weighted Average Price (AVWAP) of BTC since the U.S. Securities and Exchange Commission’s lawsuits against Binance and Coinbase is 9.1% lower than where BTC currently trades, showing that Bitcoin has bounced back from a series of bad events. The latest industry catalyst appears to be BlackRock’s recent filing for a spot bitcoin ETF. However, macroeconomic developments could still send prices lower, eroding the aforementioned gains.
The Federal Open Market Committee’s (FOMC) expected response with interest rates have played out as expected, save for a few hiccups. The market appears to be expecting at least two more rate hikes in 2023, topping out around 5.6%. Revolving debt is at all-time highs, and crypto investing continues to have a large retail component. The spread between 2- and 10-year U.S. Treasury yields is deeply inverted, with its -1.08% spread the largest since 1981. This disconnect between economic history and economic forecast implies a degree of uncertainty that may not be priced in by markets.
As an investor with a bullish bias, it forces me to ask, ‘What if I’m wrong?’ said CoinDesk Deputy Editor-in-Chief Nick Baker. As more investors ask this question, a reluctance could grow when it comes to deploying capital to crypto assets. That, in and of itself, could serve as a short-term hurdle for crypto prices.
Macroeconomic factors will always play a role in crypto markets, but recent events have shown that prices can bounce back from bad news. Investors should be aware of the potential macroeconomic developments that could send prices lower, and be prepared to adjust their strategies accordingly.