Cryptocurrencies turn downward, worried about corporate earnings and the Fed
By Álvaro Estevez / Alejandra Zamora
Date: Tuesday 31 Jan 2023
(Sharecast News) - The cryptocurrency market turns downward. Bitcoin (BTC) shifts after coming close to $24,000 and loses $23,000 after dropping nearly 2.8% in the last 24 hours. Ethereum´s (ETH) fall is sharper and exceeds 3%, which has pushed the largest 'altcoin' in the market below $1,600.
Analysts point to two possible causes for the sharp change in the price of digital assets. On the one hand, the "mediocre" results season on Wall Street, particularly in the technology sector that on the upcoming Thursday will have its acid test with the quarterly figures Apple, Amazon and Alphabet (Google) after the disappointing Microsoft resutlados. Refinitiv data shows that analysts expect S&P 500 earnings reported this week to decline 3%, with the tech sector falling 8.7%.
"While the number of S&P 500 companies reporting positive earnings surprises increased over the past week, the magnitude of these earnings surprises decreased during this time. Both metrics are still below their 5-year and 10-year averages," noted FactSet analyst, John Butters.
On the other hand, the market is beginning to have doubts that the Federal Reserve (Fed) will stick to the script and raise rates by only 25 basis points tomorrow, on Wednesday. "It's all looking quite bullish but the S&P 500 fell 1.3% as investors started to show some fear ahead of the Federal Reserve meeting. There is genuine doubt among bulls here - they know the Fed can drive a horse and coaches through their recovery by pushing back strongly against the loosening in financial conditions we have seen in recent weeks," explained Neil Wilson, chief market analyst at Markets.com.
"Stocks have had a good run higher this year so some profit-taking ahead of the uncertainty of the Fed makes sense too. The Fed is seen slowing the pace of hikes to 25bps tomorrow, with the two-day meeting kick off today. Markets currently price a 98.6% chance the FOMC votes to raise rates by 25bps, and a roughly 85% chance for one last hike in March - a setup that creates ample opportunity for a hawkish surprise from the Fed," explained Wilson, who believes the market is mispricing the Fed's stance, which could raise the terminal rate to 6%.
Edward Moya, senior market analyst at Oanda, also believes investors have become defensive in the expectation that the Fed will reinforce its 'hawkish' message. "For crypto to have any underlying support given all the regulatory and contagion fears, inflation risks need to go away. Bitcoin has massive resistance at the $24,000 level, so if risk aversion remains in place, downward momentum might not find major support until the $21,000 region," he added.
In other market news, there have been strong rallies of more than 7% for Dogecoin (DOGE) and 1.3% for Shiba Inu (SHIB). According to analyst firm Santiment, the rally in these meme cryptocurrencies is contrary to the good health of the market, as "every time the price of DOGE starts to rise rapidly, there is a crash of the entire market moments later."
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