February 3, 2023 – The crypto market pulled back from the highs after the Fed decision on a likely combination of technical correction, profit-taking and renewed macro concerns.Currently, it seems that crypto market lacks its own narrative, thus, it is following the mood of the other risk assets, which are reflecting the market participants concerns about the next US inflation data to be released next week. We think that it is natural for the market to seek some accommodation after a solid performance in January. Therefore, we would expect Bitcoin to face some resistance to break out at the US$24k price level moving forward.
On the other hand, the derivative market shows a mood as positive as it was back in late 2021. The funding rates keep the prices of Bitcoin perpetual futures contracts in sync with the spot market price. The higher the funding rate, the more optimistic traders are about the future price.There has been a shift in market sentiment after the Dec US inflation data with funding rates well into positive territory with greater price volatility. We expect funding rates to follow this trend at least until the next inflation data is released.
The Block website’s VP of Research Larry Cermak is not holding out much hope for a sustained uptrend in the crypto market. According to Cermak, crypto is lacking a strong enough narrative to be able to break free from broader macro uncertainty. Moreover, Cermark notes how quickly retail market participants have begun displaying risk-on behavior. We understand Cermak concerns, but several pieces are moving at the same time in the crypto space, certainly not in an orchestrated way, which may drastically increase volatility, resulting in more frequent rallies and sell-offs.
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Therefore, we built a governance level in the crypto market only compared with that of traditional financial institutions.