Choppy Waters as Markets Wait for a Wave
On-Chain Commentary
- The magnitude of the next Fed rate hike has clouded the near term view for risk
- Bitcoin and Ethereum remain neutral to bullish near the upper range
- Coinbase released a Layer 2 scaling network, Base, for the next billion users
Potential macro headwinds continue to dominate conversations in relation to risk assets. Strong economic data and a leveling off of inflation may move the Fed to a higher than initially expected rate hike at the March meeting. This in turn may also bring the terminal rate above 5%. PCE was released last week, coming in slightly hotter than expected. The next CPI print will be released March 14th with more jobs data released in the interim. Markets are currently pricing in a 50 bp hike around 25%, which continued to rise last week after several Fed governors discussed the ‘higher for longer’ stance in financial news outlets.
Meanwhile, digital assets continue to recover from the significant drawdown of 2022. After all of the deleveraging and unraveling of fraud in 2022, Bitcoin price has recently returned to a 9-month high. Overhead resistance remains at the 200-weekly moving average and yearly pivot, $25,000 and $26,500, respectively. The bearish trend has emerged from the downward channel and finally breached the daily Ichimoku Cloud for the first time since November 2021. Although the current range suggests a neutral sentiment, this is the first legitimate chance for an extended bullish continuation rally in over a year. Price support sits near the middle of the multi-month range around $20,000.
Ethereum has also held the $1,000 to $2,000 range for a similar time period. The technical outlook is also similar to Bitcoin, currently neutral with bullish breakout potential above $1,900. A majority of the volume in the current range is bimodal and has occurred at $1,580 and $1,270, on average. Despite the circulating supply continuing to decline, thanks to a transaction fee burning mechanism implemented in August 2021, and ongoing ETH inflows sent to the staking contract, price remains unphased. Potential regulatory uncertainty, along with forced selling associated with the now defunct crypto lenders in 2022 may be to blame. There is also some degree of uncertainty surrounding the timing of the staking unlocking mechanism, which may or may not be included in the March protocol upgrade.
Coinbase also released a Layer 2 network, Base, on the Ethereum chain using Optimism scaling technology, furthering the Ethereum narrative. In a blog post, Coinbase outlines the hope that this new chain will help onboard the next billion users into web3.
