Crypto trading could take a breather after ‘Shanghai’ rally, as investors refocus on banks and economy

Published Sun, Apr 16 20237:24 AM EDTUpdated Mon, Apr 17 20237:04 AM EDT

All eyes were on Ethereum last week as it successfully completed another major tech upgrade ( the "Shanghai" update ) following one in September ( the "Merge" event ) and the price of the ether token rallied. While ether climbed throughout the week, bitcoin – the outperformer this year – was trading more choppily. It gained 8% for the week, according to Coin Metrics, thanks to a lift from ether's post-Shapella rally. Ether advanced 12.32%. Bitcoin got an extra boost after Thursday's release of the March producer price index confirmed the cooling inflation trend from Wednesday's consumer price index update. However, even though inflation appears to be coming down, it's still above where the Fed feels comfortable, and investor concerns about whether the central bank can engineer a slowdown in the labor market that doesn't tip the economy into recession. Investors are also weighing the minutes of the March Federal Reserve meeting, which showed that the central bank expects the fallout from the U.S. banking crisis to tilt the economy into recession later this year. A slowdown would be an important time for crypto to show its stripes, said Yung-Yu Ma, chief investment strategist at BMO. "It could be the first recession test for crypto," he told CNBC. "Will it be a stabilizing event that leads to greater institutional and investor interest in crypto? Or will it be an event where people are losing money broadly and economic concerns spill over into the crypto space." "I think it could go either way, but so far what we see in the crypto space is encouraging," he added. BTC.CM= ETH.CM= 5D line 2023-04-10 Bitcoin (BTC) and ether (ETH) during the Shapella upgrade, inflation data Callie Cox, an investment analyst at trading platform eToro, said when it comes to the crypto market, bank earnings are highest on her radar heading into the week . "This earnings season in general is going to be a pivotal point for markets and corporate America, but the beginning of earnings season is heavily weighted towards financials and banks – the sector under the most scrutiny right now, and the industry that's stoked the decentralization argument," she said. Decentralization and the idea that people can transact without going through a financial institution is at the heart of bitcoin's design. Bitcoin rallied 22% in March as the crisis among U.S. regional banks opened investors' eyes to the diversity of bitcoin's narrative — specifically that the crypto asset can serve as a hedge against uncertainty and the network can serve as an alternative banking system. Cox added that the market could take a breather this week since the economic calendar is calmer . There are several Fed officials scheduled to speak too, however, which could trigger some volatility. "Investors could continue to be picky and look for perceived quality, even in the crypto space," she said. "That's helped bitcoin this year since it's seen as a risk asset outside of crypto, but a store of value within crypto. Ethereum is a brand name within crypto and it has innovations to point to, but it's seen as a building blockchain, which may not be as appealing when people are turning away from risk." Additionally, Securities and Exchange Commission Chair Gary Gensler will testify before the House Financial Services Committee on the oversight of his agency . Investors will be watching to see if he continue to emphasize most crypto tokens are securities and should fall under securities law. After Ethereum's transition to a proof-of-stake protocol last year (the Merge upgrade), he has argued ether could be a security. Despite the big price rally this year, the overall U.S. regulatory crackdown on crypto that began in January has been a dark cloud over the industry. Last week, bitcoin and ether both broke through key resistance levels. Bitcoin passed $30,000 for the first time since June and ether rose above $2,000 for the first time since August. Both cryptocurrencies had sustained those levels by the end of the week, confirming the uptrend chart analysts have been tracking since the beginning of the year. Ma said he expects to see consolidation for bitcoin around the current $30,000 level, depending on how it behaves in the face of a slowing economy and how much it can decouple from the Nasdaq. "The mass market selling point for crypto from an investing standpoint was lower correlation," he said. "The big turnoff to investors was in times when it was pretty highly correlated to the Nasdaq. During those periods, the broadness of the institutional investor interest started to wane, because if that's if that's the primary driver or the primary investment thesis – well, that's just too much correlation."