The crypto currency market is nutso! Over only the past day, total market capitalization has risen by about 3.2%, reaching an all-time high of over $2.8 trillion on March 20. Bitcoin (BTC) and Ether (ETH) have ranked up right along with them, up approximately 3% and 4% in the same time. That positive momentum coincides with the US Dollar Index (DXY) falling to its lowest levels since early November. This reflected a drop of more than 6.04% from its all-time high on January 13. The Federal Open Market Committee (FOMC) met today and voted to leave interest rates unchanged. That decision appears to have sparked the crypto market’s dramatic resurgence.
This upswing follows a period of decline, where the crypto market cap dropped to a multimonth low of $2.44 trillion on March 11. Theater market finally moving towards recovery! The daily Relative Strength Index (RSI) soared past a borderline oversold level of 31 on March 11 up to 47. None of that mattered as the FOMC meeting went exactly as scripted by the markets. Consequently, US equities are bouncing back, suggesting a thawing of risk aversion across financial markets.
Dollar Weakness and Market Correlation
The weakening US dollar is another major factor in this bullish performance we are witnessing from the crypto market. A weaker dollar tends to invite speculative investors into the search for higher returns in riskier assets, including cryptos, increasing demand and pushing prices higher. The DXY is falling, indicating a sea change in investor sentiment. This change has been prompted both by economic data and recent changes in monetary policy.
The Federal Reserve's decision to hold interest rates steady contributed to the market's positive response. The FOMC’s decision reflects a prudent approach to the conduct of monetary policy. This provides comfort to investors and reduces fears of overly aggressive rate rises that could damage the economy. This degree of stability could provide a positive environment for investment in higher risk assets such as cryptocurrencies.
This relationship between the crypto market and traditional financial markets, specifically the US equities market, is one that has been increasingly clear over the last year. Both markets posted significant increases after the Fed’s action, indicating at least one common sensitivity to macroeconomic fundamentals and policy change announcements. This interconnectedness underscores the increasing entanglement of cryptocurrencies with the larger financial system.
Technical Analysis and Future Outlook
From a technical analysis perspective, the total crypto market cap is punching above its weight. Currently, it is attempting to push through the resistance area of between $2.8 trillion and $3 trillion. The 200-day and 50-day Simple Moving Averages (SMAs) all add further confirmation to this zone, making it very strong. Their presence only adds to the difficulty of breaking through this ceiling. A successful breakout would indicate a return to at least a medium-term bullish trend.
Many market observers believe that more bullish catalysts must materialize for the crypto market to enter a true bull market. Potential catalysts might be a Supplementary Leverage Ratio (SLR) exemption. This exemption would provide a huge amount of bank capital available for bank lending and investment. Further, a restart of QE would pump new liquidity into the financial system.
Market Sentiment and Investor Confidence
Similar to the crypto market’s recent recovery, this change in attitude represents a larger turnaround in market sentiment and confidence. After experiencing a period of uncertainty and downward price movement, investor confidence has returned. This increase in demand, combined with returning to the market, is increasing demand and creating upward pressure on prices, too. Effects on RSI The newly improved RSI also complements this bullish outlook, suggesting that the market is ready to move past oversold levels.
It is crucial for investors to understand that the crypto market is still highly volatile and prone to sudden price fluctuations. All investors are urged to perform careful due diligence on each issuer of securities contemplated for purchase, and consult an independent investment advisor. The market’s longer-term trajectory will be influenced by many factors, including regulatory developments, technological advancements, and macroeconomic conditions.
