As we expect, Fed Chair Powell has turned less hawkish once the US Midterm elections were out of the way. In anticipation of this dovish shift, we suggested a month ago that the US Dollar (USD) would peak out and with it, interest rate expectations. Indeed, the USD has already declined by -8% and is sitting on the 200-day moving average support line – a level that many traders use to determine if an asset is in a bull (above) or bear (below) market.
When the USD is in a bear market, risk assets tend to rally as a weaker USD tends to open the liquidity floodgates – especially if bond yields are declining as well – as has been the case with the benchmark 10-year US bond yield. Hence, our expectation that a weaker greenback would support crypto prices and with declining inflation expectations – as Chair Powell admitted this week, macro would become a tailwind for risk assets and crypto.
Historically, (US) stocks and crypto have a strong relationship with each other. Without the FTX implosion, Bitcoin might have been trading at 29,000 by now – instead of 17,200 (or +69% higher). But with a supportive macro backdrop, those levels might be achieved in 2023.
The dispersion within tokens has been exceptionally high last week. For example, Huobi rallied +40% after Huobi Global announced it would airdrop a new token, the ‘Dominica coin’ or DMC, as the world’s first national token. Dogecoin also rallied +33% upon speculation that Elon Musk and Vitalik Buterin are collaborating on upgrading the meme coin.
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