Bitcoin and Ethereum Bounce Back Ahead of Fed? Cryptoasset Weekly Update (September 14 2024)

BTC/USD & ETH/USD Key Points

• Traders split on whether the Fed will cut 25bps or 50bps this week after the WSJ’s “Fed Whisperer” reopened the door for a 50bps rate cut.
• US election prediction markets have tightened following the debate, a potential headwind for cryptoassets.
• Both Bitcoin and Ether bounced back strongly from support.

Cryptoasset Market News

• Bitcoin hashrate hit all time highs, climbing to 692 exahash per second.
• The Swiss National Bank disclosed holdings of 466,000 shares of MicroStrategy. Goldman Sachs also disclosed $418M in BTC ETF holdings.
• The US Government moved 10,000 of Silk Road BTC worth $590M from one wallet to another, a possible precursor for another round of long-dormant supply dumping.

While not crypto-specific news per se, US Democratic Presidential Candidate Kamala Harris laid out her economic agenda last week. Many of the priorities could be characterized as “populist,” including the elimination of medical debt for millions of Americans, a ban on price gouging for groceries and food, a cap on prescription drug costs, a $25,000 subsidy for first-time homebuyers, and an expansion to the Child Tax Credit. Many observers have labeled these priorities as likely inflationary, a development that could benefit cryptoassets at the expense of the US dollar if Harris is elected.

Macroeconomic Backdrop

From a purely macroeconomic perspective, last week’s inflation-focused data was always going to be less significant than the previous week’s labor market focused data after the Fed publicly announced its shifting focus at Jackson Hole. That said, CPI and PPI data came out mostly as expected, leaving traders fairly confident that the Fed would kick off its easing cycle in the coming week with a standard 25bps interest rate cut…that is, until midday Thursday, when the Wall Street Journal’s “Fed Whisperer” Nick Timiraos published an article that (re)opened the door for a potential 50bps interest rate cut.

Whether or not Timiraos got the proverbial “tap on the shoulder” from the Fed, traders are now pricing in about even odds of a 25bps and 50bps rate cut from the Fed this week, setting up the potential for volatility around Wednesday’s rate decision.

While not strictly a macroeconomic development, US Vice President Kamala Harris was seen as “winning” the debate with former President Donald Trump. As a reminder, Trump is seen as the more pro-crypto candidate, so to the extent that this has tightened prediction markets heading into the election, politics may serve as a modest headwind for cryptoasset prices.

Sentiment and Flows

The sentiment gauge we watch most closely, the “Crypto Fear and Greed Index,” rose slightly to 32 last week. Overall, it remains near its 1-year lows, potentially setting up a contrarian bullish reversal signal if we see any positive developments in the coming weeks:

Source: Alternative.me

Another way of gauging sentiment, flows into exchange-based cryptoasset investment vehicles, remained tepid last week. As of writing before the release of Friday’s data, Bitcoin ETFs have seen relatively modest inflows of about $135M over the last four days. Over the long-term, inflows from “tradfi” investors provide incremental demand for Bitcoin and could help support the price.

Source: Farside Investors

Meanwhile, the outflows from Ether ETFs (namely the higher-fee legacy Grayscale product (ETHE)) have moderated. These outflows, which have already totaled more than a third of the fund in just 8 weeks, will soon be less significant, potentially removing a headwind from ETH/USD prices.

Bitcoin Technical Analysis: BTC/USD Daily Chart

Source: StoneX, TradingView

As the chart above shows, Bitcoin saw an impressive rally off $53K support last week, recovering back to its 50-day EMA near $60K as of writing on Friday afternoon. The cryptocurrency has been putting in “lower highs” since early June, and bulls will want to see that trend come to an end before turning more constructive on the short-term outlook for the BTC/USD pair.

From a bigger picture perspective, the cryptocurrency continues to consolidate within its broad post-March range, leaving a neutral near-term outlook and a longer-term bullish outlook intact for now.

Ethereum Technical Analysis: ETH/USD Daily Chart

Source: StoneX, TradingView

Like Bitcoin, Ether bounced off a support level last week, in its case, near $2,125. However, the second-largest cryptoasset remains mired in a near-term bearish trend below its 50-day EMA, leaving bears in control for now.

Bulls will want to see ETH/USD regain key previous-support-turned-resistance at $2850 to paint a more bullish picture for Ether, whereas a break below $2125 support could set the stage for a continuation toward the next level of support near $1700.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos and be sure to follow Matt on Twitter: @MWellerFX