As a seasoned analyst with over two decades of experience in the financial markets, I’ve seen my fair share of market volatility and unexpected twists. The upcoming decisions by the Federal Reserve and Bank of Japan have the potential to shake up the crypto market once again.
Cryptocurrencies like Bitcoin and many others stayed within a limited price movement, as the Crypto Fear & Greed Index dipped into the ‘fear’ region at 33, signifying apprehension among investors in anticipation of announcements from the Federal Reserve and Bank of Japan.
This week, Bitcoin (BTC) has struggled to break past the $60,000 mark, whereas Ethereum (ETH) has remained below the $2,400 level. Notable coins such as Solana, Tron, and Litecoin have shown minimal activity this week.
In simple terms, the accumulation of Bitcoin increased significantly as MicroStrategy, a prominent corporation with the most Bitcoin holdings, further added Bitcoins to its assets. Currently, they possess approximately 244,800 coins valued at over $14.1 billion. Furthermore, during the initial four days of the week, Exchange-Traded Funds (ETFs) focused on spot Bitcoin witnessed a net investment of about $144 million.
Contrarily, Ethereum faced persistent downward pressure due to ongoing ETF redemptions and reports of Vitalik Buterin and the Ethereum Foundation selling additional coins. Furthermore, indications suggest that larger Ethereum holders may be cashing out their tokens.
6,999 Ether ($16.4 million) was recently deposited by Metalpha onto Binance once more, just an hour ago. In the last six days, Metalpha has added a grand total of 62,588 Ether ($145.1 million) to Binance and currently holds approximately 23,500 Ether ($55 million).
— Lookonchain (@lookonchain) September 12, 2024
Federal Reserve and BoJ decisions ahead
Moving forward, there’s a possibility that cryptocurrency values may face some stress during the upcoming week due to meetings between the Federal Reserve and the Bank of Japan.
Based on the recent positive U.S. inflation figures and the inconclusive nonfarm payrolls report from last week, it’s anticipated that the Federal Reserve will lower its interest rates. The financial market indicates a potential reduction of 0.50% during their upcoming meeting.
Economists predict that the Bank of Japan will keep its interest rate at 0.25%, just as they did before. Yet, there’s a possibility, as was the case last time, that the bank might take the market off guard by increasing rates once more. Governor Kazuo Ueda suggested in his latest statement that he could potentially raise rates again if inflation continues to stay high.
As an analyst, I’d rephrase that statement like this: If the Federal Reserve lowers interest rates and the Bank of Japan raises them, the gap in returns between U.S. and Japanese bonds would shrink. This change would potentially render the long-standing carry trade, where investors borrow at lower interest rates to invest in higher-yielding assets, less profitable or even invalid.
Here’s a more conversational way to explain it: Investors are engaging in a carry trade when they borrow money from countries with lower interest rates (like Japan) and use those funds to invest in higher-yielding markets (such as the United States). This strategy could be behind the Japanese yen reaching 140 against the U.S. dollar, representing a 13% rise from its lowest point this year.
Today, the Japanese Yen has strengthened by approximately 0.9% and is currently valued at 140.5 against the US dollar. This strengthening trend is driven by market expectations of an increase in the interest rate differential favoring Japan. Noteworthy, the past month’s growth (as illustrated in the chart below) has occurred with a surprising degree of tranquility within the economy.
— Mohamed A. El-Erian (@elerianm) September 13, 2024
The potential consequences of this unwinding might reverberate throughout the cryptocurrency sector, similar to what occurred in August. During that time, Bitcoin plummeted to approximately $49,000 and Ethereum dropped to around $2,100 – a situation reminiscent of ‘Crypto Black Monday’.
It’s quite possible that the prices of Bitcoin, other cryptocurrencies (altcoins), and stocks may fluctuate significantly as the Federal Reserve and Bank of Japan announce their decisions on September 18th and 20th, respectively.
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2024-09-13 18:02