Quantitative Tightening

ETH hits 7-month high ahead of Shanghai and Capella upgrades

Ether has broken the $1,900 resistance level for the first time in months and is currently sitting above $1,911.

Ether (ETH) has breached $1,900 for the first time in over seven months, a week before staking withdrawals are enabled in the next major update for the second-largest cryptocurrency by market capitalization.

CoinMarketCap data shows the last time Ether was over $1,900 was on Aug. 16, 2022, amid a broader crypto sell-off when the United States Federal Reserve was hiking the federal funds rate at a record pace to combat inflation.

The Ethereum Shanghai hard fork, set to occur on April 12, will implement Ethereum Improvement Proposal (EIP)-4895 — allowing validators and stakers to withdraw staked ETH from the Beacon Chain — in addition to other EIPs, aiming to help increase transaction speeds while reducing transaction costs.

The recent price increase could be driven by expectations that the Fed may ease up on its quantitative tightening efforts as rate increases cause cracks in the global banking industry or by increased demand for Ether, given that staking is slated to be more flexible.

While Bitcoin (BTC) has also recorded gains recently, ETH/BTC — a trading pair comparing the price of ETH to BTC — has increased by nearly 3% in the last week, according to TradingView, suggesting both factors may be contributing to Ether’s price jump.

Shanghai refers to the fork on the execution layer client side, and Capella is the upgrade name on the consensus layer client side that is set to be executed shortly after Shanghai on April 12.

The execution layer is where all the smart contracts and protocol rules are, while the consensus layer ensures that all network validators follow these rules.

Related: 3 reasons why Ethereum price can reach $3K in Q2

It is worth noting that the price of ETH dropped sharply following the execution of the Merge on Sept. 15, 2022, where it lost just under a quarter of its value in one week, according to CoinMarketCap.

ETH price action since August 2022. Source: CoinMarketCap

Despite some analysts and traders suggesting that unlocking staked Ether will create sell pressure, what will occur following the Shanghai and Capella updates is speculation.

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Bitcoin price surge: Breakthrough or bull trap? Pundits weigh in

Bitcoin nearly broke its record for the longest streak of daily green price candles this month, but many believe its recent surge could be short-lived.

While Bitcoin (BTC) has experienced a strong price pump to kick off the new year, many industry pundits are not convinced the cryptocurrency will continue its upward trajectory — at least in the short to mid-term. 

The impressive price surge — which saw BTC experience 14 days of consecutive price increases earlier this month — has called on many to consider whether the surge marks a significant “breakthrough” or is indicative of a “bull trap.”

Speaking to Cointelegraph on Jan. 23, James Edwards — a cryptocurrency analyst at Australian-based fintech firm Finder — said the argument for a “bull trap” is stronger, warning the recent surge could be “short-lived.”

He stated that while the BTC price moved upwards over the weekend, the NASDAQ Composite and the S&P 500 also made similar rallies:

“This suggests to me that the rally in crypto is not unique, and instead part of a wider market uplift as inflation figures stall and a risk-on appetite appears to return to investments. So Bitcoin is just enjoying the effects of positive sentiment that originated elsewhere. This is likely to be short-lived.”

Edwards added that cryptocurrency markets still have some “significant hurdles to clear before a new bull market can begin.”

Among those obstacles, he mentioned include the continued fallout over FTX’s collapse and the recent Chapter 11 filing by Genesis on Jan. 19.

“As such, we’re going to see further sell-offs and downsizing as crypto firms adjust their balance sheets and dump tokens onto the market to cover debt and try to stay afloat,” he explained.

In a statement to Cointelegraph, Bloomberg Intelligence Senior Commodity Strategist Mike McGlone wasn’t confident in the BTC price trajectory either, citing recessionary-like macroeconomic conditions as too big of a barrier for BTC to overcome.

“With the world leaning into recession and most central banks tightening, I think the macroeconomic ebbing tide is still the primary headwind for Bitcoin and crypto prices.”

The sentiment was also shared among some on Crypto Twitter, with cryptocurrency analyst and swing trader “Capo of Crypto” telling his 710,000 Twitter followers on Jan. 21 that BTC’s push past resistance looks like “the biggest bull trap” he has ever seen:

However, not all industry pundits were as bearish.

Cryptocurrency market analysis platform IncomeSharks appeared bullish, having shared a “Wall St. Cheat Sheet” chart with its 379,300 Twitter followers on Jan. 22 making a mockery of the bears who think the latest price movements are indicative of a “bull trap.”

Sem Agterberg, the CEO and co-founder of AI-based trading bot CryptoSea, also recently shared a flood of posts expressing positive sentiment toward BTC price action to his 431,700 Twitter followers, suggesting that a “BULL FLAG BREAKOUT” toward $25,000 may soon be on the cards.

Meanwhile, others have refrained from making a forecast on the price, likely given the unpredictability of crypto markets.

Related: Bitcoin price consolidation opens the door for APE, MANA, AAVE and FIL to move higher

At the time of publication, Bitcoin was priced at $22,738, while the Crypto Fear and Greed Index was at “Neutral” with a score of 50 out of 100.

The cryptocurrency managed to break out of the “Fear” zone on Jan. 13 — which was then scored at 31 — after the BTC price increased for seven consecutive days.

Market sentiment of Bitcoin expressed on a 0-100 “Fear & Greed Index” scale. Source: Crypto Fear & Greed Index.

Bitcoin is a ‘wild card’ set to outperform —Bloomberg analyst

The commodity strategist has pegged Bitcoin to rebound strongly from the bear market despite headwinds for high-risk assets.

Bloomberg analyst Mike McGlone has labeled Bitcoin (BTC) a “wild card” which is “ripe” to outperform once traditional stocks finally bottom out. 

In a Wednesday post on Linkedin and Twitter, McGlone explained that while the United States Federal Reserve tightening will likely determine the direction of the stock market, Bitcoin remains a “wildcard” that could buck the trend, stating:

“Bitcoin is a wild card that’s more ripe to outperform when stocks bottom, but transitioning to be more like gold and bonds.”

The commodities strategist shared more details in a Wednesday report, which noted that Bitcoin was primed to rebound strongly from the bear market despite a “strong headwind” toward high-risk assets:

“It’s typically a matter of time for the fed funds gauge to flip toward cuts, and when it does, Bitcoin is poised to be a primary beneficiary.”

The report notes that while Bitcoin would follow a similar trend to treasury bonds and gold, Ether (ETH) “may have a higher correlation with stocks.”

The Federal Reserve’s increased quantitative tightening comes amid several major interest rate hikes throughout 2022, with the most recent spike accounting for a 75 basis points increase on July 27.

While it is not known exactly when the Fed’s quantitative tightening will end, some economists predicted the endpoint will begin “at some point in 2023” according to a Bloomberg article published in August. 

Quantitative tightening is a contractionary monetary policy tool that is used by central banks to reduce the level of money supply and liquidity in an economy, which can reduce spending across markets such as stocks. 

Related: Bitcoin likely to transition to a risk-off asset in H2 2022, says Bloomberg analyst

Despite Bloomberg’s bullish take, however, other experts believe that Bitcoin and equity markets have actually become more correlated than before.

Cointelegraph contributor Michaël van de Poppe recently said the correlation between the S&P 500 index and BTC was approaching 100%, while a number of IMF economists claimed to have seen a 10-fold increase in correlation between crypto and equity markets in some regions of the world.