Federal Reserve to “Determine the Fate of the Market”: Five Things to Know about Bitcoin this Week

Audy Castañeda
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Federal Reserve to “Determine the Fate of the Market”: Five Things to Know about Bitcoin this Week

“The Fed’s quantitative tightening announcement on Wednesday will determine the fate of the market,” says analyst Alex Krueger.

Bitcoin (BTC) starts a new week with a lot to make up for after its worst performance in April.

The monthly close left the BTC/USD pair firmly within its set 2022 trading range, with fears already that the next level it hits will be $30,000 or even lower.

Sentiment has improved as May begins, and while crypto remains generally tied to macro factors, on-chain data is pleasing rather than scaring off analysts.

However, given the US economic policy decision due on May 4, the next few days may be a matter of unthinking reactions as markets try to align with central bank policy.

In this article, we look at these and other factors that will determine Bitcoin price action this week.

Fed Back in the Spotlight

The macroeconomic markets, as usual, are on edge this week as a new meeting of the United States Federal Reserve approaches.

The focus is therefore on the meeting of the Federal Open Markets Committee (FOMC) to take place on May 3 and 4.

“First came the Fed. Then the Netflix apocalypse. Then the Russian invasion. Then sanctions. Then the Fed and the biggest Treasury dump in history. This week was earnings. Next week it was the Fed again.” macro analyst Alex Krueger summed up the weekend:

Krueger referred to a policy known as quantitative tightening (QT), the counterpart to quantitative easing, or QE, which describes the pace of withdrawal of economic support from the Fed in an attempt to shrink its $9 trillion balance sheet.

Is it Time for the Price of Bitcoin to Return to the $28,000 Level?

“The BTC chart is heavy right now, and a drop below $35,000 could cause a race to the exit… However, I do not trust falling patterns in this range. We saw short squeezes and breakout traps from the all-time highs over the past year,” popular trader Chris Dunn tweeted on May 1: “It’s risky to anticipate, it’s better to react… I’d love a $26,000 washout.”

Dunn is far from alone in calling for a capitulation event that takes the market to $30,000 or below. “As far as talking about capitulation, I think it would require Bitcoin to go below $30,000” analyst Matthew Hyland said.

Hyland explained that low-volume markets are likely to see larger price swings, and a significant BTC price drop may be necessary to rekindle engagement amid a general lack of engagement at current levels.

US Dollar Strength Maintains Pressure

April may be over, but the fallout from the US Dollar Index (DXY) is still evident.

Gains made in a single day on April 29 are history, and on May 2, DXY attempts to continue a rally that has seen the dollar’s strength reach its highest since 2002.

“The development of the dollar is highly dependent on the Fed’s course of action. Rising inflation and a possible 50 basis point rate hike in early May could strengthen DXY,” explained the latest Uncharted bulletin from on-chain analytics firm Glassnode.

Trader: Illiquid Supply Outweighs Importance of Falling Prices

According to Glassnode’s Illiquid Supply Change indicator, the past few weeks have seen large increases in the overall segment of BTC supply, which is no longer available for purchase.

The result is that the Illiquid Supply Change is reaching levels not seen since late 2020 when the BTC/USD pair began showing signs of a “supply shock” as market participants amassed what was a class of assets that was already receiving numerous purchases.

Cointelegraph contributor van de Poppe argued that the indicator “says a lot” and might even remove some of the fear around a drop to $30,000.

Crypto Sentiment “Crosses” the Macro

In what could be a positive aspect under the current circumstances, sentiment in the crypto space is already pointing higher this week, even as mainstream market sentiment remains jittery.

The Cryptocurrency Greed Fear Index, having touched two-week lows of 20/100 last week, has moved out of its “extreme fear” zone.

By Audy Castaneda

High Bot Activity on Red Solana Results in Seventh Outage so far in 2022

Audy Castañeda
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High Bot Activity on Red Solana Results in Seventh Outage so far in 2022

The NFT minting bots on Solana contributed more than 4 million transactions per second, knocking validators out of consensus and causing the network to go down for about seven hours.

The Solana network suffered a seven-hour outage overnight between Saturday and Sunday due to a large number of transactions from the non-fungible token (NFT) minting bots.

A record four million transactions, or 100 gigabits of data per second, congested the network and caused validators to fall out of consensus, causing the Solana network to go down at approximately 20:00 UTC on Saturday.

It was not until seven hours later, on Sunday at 3:00 UTC, that validators were able to restart the mainnet successfully.

How the Outage Happened

On Twitter, @SolanaStatus posted that, “Validator operators successfully completed a cluster restart of Mainnet Beta at 3:00 AM UTC, following a roughly 7-hour outage after the network failed to reach consensus. Network operators and dapps will continue to restore client services over the next several hours.”

The bots hijacked a popular app used by the NFT projects in Solana to launch collections called the Candy Machine. In a Metaplex Twitter post, the company confirmed that bot traffic in its app was partially to blame for the network outage:

“Today Solana mainnet-beta went down partially due to botting on the Metaplex Candy Machine program. To combat this, we have merged and will soon deploy a botting penalty to the program as part of a broader effort to stabilize the network.

Metaplex shared that it would be implementing a charge of 0.01 Solana (SOL), or $0.89 at press time, on wallets that try to complete an invalid transaction that the firm said “is typically done by bots that are blindly trying to mint.”

The outage caused the price of SOL, the native currency of the Solana network, to plunge almost 7% to $84, though prices have since recovered to above $89.

The recent network outage marks the seventh time this year that it has suffered technical difficulties, according to its own status reports. Between January 6 and 12, 2022, the network suffered problems that caused partial outages of between 8 and 18 hours.

At This Point… Solana…

Solana said that “high computing transactions” caused a reduction in network capacity to “several thousand” transactions per second (TPS), well below the advertised 50,000 TPS.

Later in January, more than 29 hours of downtime were recorded between the 21st and 22nd of the month, with excess duplicate transactions again causing network congestion and Blockchain network outages.

In September 2021, Solana suffered a major network outage for more than 17 hours. Solana attributed that drop to a distributed denial-of-service (DDoS) attack against an initial decentralized exchange (DEX) offering, with bots sending 400,000 messages per second to the network. Industry watchers commented on what they have often considered an “Ethereum killer”.

Solana was the second network subjected to notable NFT-related transaction volume over the weekend. The cost of transactions on Ethereum soared to an average of over $450 due to the launch of 55,000 NFTs by Yuga Labs, with some users paying as much as 5 Ether (ETH), or $14,000, in gas fees for transactions, and much more to mint one of the NFTs.

By Audy Castaneda

Indian IT Ministry Orders Crypto Exchanges to Store User Data for Five Years

Audy Castañeda
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Indian IT Ministry Orders Crypto Exchanges to Store User Data for Five Years

New directives for VPN service providers and cryptocurrency exchanges would require them to collect critical private information as well as customer ownership patterns.

India’s Computer Emergency Response Team (CERT-in), which reports to the Ministry of Electronics and Information Technology, issued a new directive on Thursday, forcing cryptocurrency exchanges, virtual private network (VPN) providers ) and data centers to store a wide range of user data for up to five years.

Under the newly issued directive, crypto exchanges operating in India will be required to store customer names, ownership patterns, contact information, and various other data.

CERT-in Directives

Cryptocurrency exchanges and VPN service providers are also required to report any cyber incident within six hours of its occurrence and must hand over collected data to authorities upon warrant. The official directive read as follows:

“When required by order/instruction of CERT-In, for the purposes of response to cyber incidents, protective and preventive actions related to cyber incidents, the service provider/intermediary/data center/legal entity is mandated to take action or provide information or any such assistance to CERT-In”.

More specifically, the directive demands that:

“Data Centers, Virtual Private Server (VPS) providers, Cloud Service providers, and Virtual Private Network Service (VPN Service) providers, shall be required to register the following accurate information which must be maintained by them for a period of 5 years or longer duration as mandated by the law after any cancellation or withdrawal of the registration as the case may be:

a. Validated names of subscribers/customers hiring the services

b. Period of hire including dates

c. IPs allotted to / being used by the members

d. Email address and IP address and time stamp used at the time of registration /onboarding

e. Purpose for hiring services

f. Validated address and contact numbers

g. Ownership pattern of the subscribers / customers hiring services.”

The new directives will take effect on June 22, which may force many privacy-focused VPN service providers and crypto platforms that do not collect and store critical user data to shut down their operations.

CERT-in claims that the new directives’ main purpose is to help them take action against cybercrime within six hours; however, the variety of data they ask platforms to store and deliver has drawn attention due to concerns of privacy among users.

Mixed Reactions to the Directives

In regards to privacy issues, a user wrote that, “our government wants to control people’s private lives and our constitution doesn’t allow it, but to be honest, no one in India is very conscious about personal data.”

However, some crypto exchange owners welcomed the step, saying it will help prosecute tax evaders. Unocoin CEO Sathvik Vishwanath told Cointelegraph:

“This is a good move and helps crypto players get clarity on what data they would be storing. The data would help prosecute tax evaders and any crime that occurs using cryptocurrencies.”

At this point, it is unclear whether the new rules would apply to crypto exchanges that operate only in India or to foreign exchanges that offer their services to Indians as well. However, looking at the crypto guidelines above, it might well be applicable to all platforms.

The new data collection directives come at a time when the country’s regressive crypto tax policy has already led to a sharp decline in trading volume and user activity on Indian crypto exchanges.

By Audy Castaneda

Three Key Metrics Indicate Price of Terra (LUNA) Preparing for a Recovery

Audy Castañeda
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0
Three Key Metrics Indicate Price of Terra (LUNA) Preparing for a Recovery

LUNA price is far from its all-time high, but three key metrics indicate the altcoin could be gearing up to rally.

Terra (LUNA) price has lost 31% in the last four weeks, erasing all gains accumulated so far this year, and while the token continues to outperform the broader crypto market by 20%, Terra is struggling for holding above the $85 support.

Previously, some bullish catalysts included Terra’s USD (UST) stablecoin flipping Binance USD (BUSD) to become the third-largest stablecoin on April 18 and the April 26 announcement that Fireblocks, a digital asset custody platform, had seen institutional clients invest more than $250 million in Terra’s decentralized finance (DeFi) ecosystem.

This flow of positive news was not enough to instill confidence in Terra investors and there were some changes, which could have dampened partially the continued influx of deposits into the network.

TVL Up, but Dapp Transactions Down

Terra’s main decentralized application metric rose 41% over the past month as the network’s total value locked (TVL) hit an all-time high of 254 million LUNA.

Terra DApp deposits saw a 77% jump in 2022, reaching the equivalent of $21.2 billion. For comparison, Binance Chain’s TVL currently stands at $9.8 billion, up 9% in BNB terms year-to-date. Avalanche, another DApp scaling solution competitor, saw a 28% increase in TVL in terms of AVAX to reach a value of $7.9 billion.

To confirm whether DApp usage has indeed increased, investors should also look at the transaction count within the ecosystem.

Anchor has a TVL of USD 16.6 billion, equivalent to 78% of the total deposits in Terra decentralized applications. The protocol averaged 70,150 transactions per day last week, which is 15% below the levels seen in early April.

Astroport, an automated market-making project, occupies the second position in terms of TVL within the Terra ecosystem, with deposits worth USD 1.6 billion. It is worth noting that last week there was an average of 50,650 daily transactions, which represents a decrease of 30% compared to the previous month.

According to data from Terrascope, decentralized asset liquidity app Terraswap had an average of 31,400 daily transactions over the past week. The figure is similar to the levels seen in early April.

Derivatives Data Show No Sign of Difficulty

The decreased use of Terra DApps does not appear to have affected the appetite of derivatives traders.

The chart above shows that the open interest for LUNA futures contracts is holding steady at $706 million. This data is essential because a smaller number of futures contracts could limit the arbitration tables and the activity of institutional investors.

Furthermore, Terra has the third-largest open interest behind Bitcoin (BTC) and Ether (ETH). For comparison, Solana (SOL) and XRP futures contracts have an open interest of $660 million.

LUNA Foundations Still Solid

Although it seems impossible to pinpoint the cause of the LUNA price drop, the decrease in the use of decentralized network applications may partially explain the movement. However, the increase in their smart contract deposits, as shown by the rise in TVL and strong interest from derivatives traders point to a near-term price recovery.

The data suggests that Terra holders are not concerned about the 31% price correction and focus on growing the ecosystem versus their competitors. As long as these metrics remain healthy, investors are unlikely to sell at a loss.

By Audy Castaneda

XRP Price Rebounds after Worst Month since June 2021. Big Recovery Coming?

Audy Castañeda
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XRP Price Rebounds after Worst Month since June 2021. Big Recovery Coming?

The bounce move has occurred near a technical support confluence, raising the possibility of XRP rising 30% in Q2/2022.

XRP opened May with a decent price rebound after falling 28% in April, its worst monthly performance since June 2021. Furthermore, the XRP/USD pair shows prospects of continuing its recovery trend in the coming weeks.

The price of XRP rose by almost 6.25% in the first two days of May, reaching $0.63 (Binance data).

Confluence of Supports Raises Bullish Outlook for XRP

Buying sentiment emerged around $0.58, a level that acted as strong support in January 2022 and allowed XRP to rise more than 50% thereafter.

Interestingly, the support at $0.58 coincides with the 200-week exponential moving average of XRP.

It also serves as the lower trend line of a broader descending triangle pattern, a bearish indicator pointing to $0.18 in the coming months.

As XRP price bounces off a confluence of support levels, its probability of retesting the upper trend line of the triangle is high. That would see the token testing levels above $0.75 — a nearly 30% rise from the current price — as its next resistance target in Q2 2022.

Buying amid Rumors

XRP has emerged as a speculative vehicle for traders looking to profit from the ongoing SEC case against Ripple.

In December 2020, the United States Securities and Exchange Commission (SEC) filed a lawsuit against Ripple for making illegal sales of securities through XRP. However, recent hearings indicate that the case has gone relatively well for Ripple.

It is worth recalling that last February, Alexander Mamasidikov, co-founder of cryptocurrency wallet service MinePlex, ignored bearish warnings, claiming that the end of a long court battle between the SEC and Ripple would be bullish for XRP.

“With anticipation that the SEC-induced legal battle alleging XRP’s status as a security will be resolved this year, current purchases may be seen as an avenue to stack up at a discount for a potential longer-term price rally,” Mamasidikov has said then; it appears that he was right.

On Twitter, Kevin Page, crypto investor, and advisor posted the following:

“Record Growth. Majority of Ripple partners & volume exist outside of the US “already operating in worst-case scenario. SEC case going exceedingly well. Look at the Ripple Advisors & Board (e.g. 43rd US Treasurer, Former CFTC Chair, and now Michael Barr – Ripple Advisor…).”

SEC against Ripple and its Repercussions

The SEC case against Ripple has dampened buying sentiment in the XRP market, as it is the only veteran token, in the top ten, which has failed to break above its 2017-2018 bull market highs. Nevertheless, analysts believe that Ripple’s victory would dramatically improve XRP’s bullish outlook.

“XRP investors could benefit immensely if Ripple emerges victorious in the war,” says SeekingAlpha analyst Practical Crypto Capital.

The analysts then added that “holders should watch the news and be prepared; based on the examples of the past year, we can probably expect earnings to quickly peak and then taper off.”

By Audy Castaneda

The Fed Raises Interest Rates by 50 Basis Points to Fight Inflation

Audy Castañeda
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The Fed Raises Interest Rates by 50 Basis Points to Fight Inflation

The meeting of the Federal Open Market Committee this May concluded with the biggest increase in interest rates in more than two decades.

The US Federal Open Market Committee (FOMC) concluded two days of meetings on Wednesday with the long-awaited announcement of an interest rate hike of 50 basis points, or 0.5%. This is the second of seven rate adjustments planned for this year. In March, the Federal Reserve raised its benchmark interest rate by 25 basis points, or 0.25%, marking the first upward adjustment since 2018.

In a widely publicized question-and-answer session in late March this year, Neel Kashkari, president of the Minneapolis Fed, revealed that there could be as many as seven key rate hikes this year. While potentially not everything is necessary, he explained, the Fed needed to deal with the problem of inflation. “There is a danger of exaggeration. We are going to get information,” he said, quoted by Reuters.

Markets were ready for Wednesday’s rally, which was the biggest since 2000, so we can expect a moderate immediate reaction. Fed Chairman Jerome Powell hinted at a 50 basis point adjustment at a debate hosted by the International Monetary Fund in April.

Christophe Barraud, US top forecaster and strategist, posted on Twitter that the Fed “raises rates 50 BPS, to start runoff June 1 at $47.5B/MTH; (…) expects ‘ongoing’ increases in rates will be appropriate; (…) runoff pace to rise to maximum $95B/MTH after three months.”

Increasing Interest Rates and the fall of BTC Prices

Since the Federal Reserve revealed its plans to start raising interest rates in November, the price of Bitcoin (BTC) has fallen by more than 40%. BTC hovered around $41,000 following the FOMC decision in March. It is now trading at about $39,000.

The FOMC move is an attempt to combat rising inflation, which reached 8.5% in March, the highest in four decades. Many economists have criticized the Fed for being too slow in its fight against inflation, making it prone to overreacting. The Fed has kept interest rates at zero to support the economy during the COVID-19 pandemic, but wrongly ruled out a pick-up in inflation in 2021 as “temporary”. Now, the continuation of the war in Ukraine and the new wave of COVID lockdowns in China have created even greater inflationary pressure around the world.

Some Reactions

In its economic policy statement on Wednesday, the Fed also announced that it will start selling part of its balance sheet of bonds and mortgage-backed securities, the size of which has doubled to $9 trillion since the pandemic began. At best, this will cause a temporary shock to financial markets, but could have longer-term negative effects.

In a speech at the White House early on Wednesday, US President Joe Biden said the Treasury Department will reduce the national debt this quarter, which will also help ease inflation. Treasury Secretary Janet Yellen, speaking at an event hosted by The Wall Street Journal on Wednesday, said she expects continued economic growth this year and a “soft landing” in inflation without slipping into a recession.

By Audy Castaneda

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