The volatility of the cryptocurrency market this week (7.24-7.28) has increased compared to previous weeks. The volatility primarily originates from the earnings season of U.S. tech companies and the Federal Reserve’s July FOMC interest rate meeting. Besides, there are no new narratives in the cryptocurrency market itself. The Bitcoin spot ETF application previously submitted by BlackRock is now officially under review by the Federal Reserve, with no determined timeline for the results. Looking at the market now, there’s a general pessimistic sentiment, as stablecoin market value continues to decline (USDC is falling rapidly, USDT is relatively stable), with continuous capital outflows and weakening liquidity in the market.
Figure 1: USDC’s market value has been declining for nearly a year
The Fed raised interest rates by 25 basis points at its July meeting, an expectation already fully factored in by the market. U.S. stocks even strengthened for a while after the meeting, as Fed officials believe that recession is almost out of the picture. Powell stated that the current 5.5% interest rate has reached a restrictive level. This was interpreted by the market as dovish, meaning that despite high interest rates being maintained for a while, the probability of further rate hikes has decreased.
Improved liquidity expectations and the Fed’s interest rate meeting caused the cryptocurrency market to gradually strengthen, with Bitcoin, Ethereum, and other currencies showing an upward trend. However, this trend did not last. The next day, the U.S. released seasonal PCE MoM (3.8%, forecast 4.0%) and GDP QoQ (2.4%, forecast 1.8%) data. Despite both being better than expected, the Fed also announced a 19% increase in U.S. banks’ capital reserves, implying a reduction in the money multiplier and less liquidity. From another angle, it means that the Fed may be preparing for further rate hikes in September or November (to avoid another banking crisis). Bitcoin, Ethereum, and other coins fell back after this information was disclosed, as if nothing had happened.
On the other hand, it’s worth noting that certain RWA sectors, have bucked the trend. Maker ($MKR) performed well this week, maintaining an upward trend, with its price rising from $1000, breaking through multiple levels to nearly touch $1,300. In our view, there are two main reasons behind this: firstly, institutional investors are currently chasing RWA (Real World Asset) coins, and as a leading coin, MKR is bound to continue its upward trend; secondly, most countries globally are in a cycle of raising interest rates, with bond yields continually rising. Some bond yields invested by $MKR have driven rapid asset expansion.
Figure 2: $MKR price has been continuously rising since the end of June
Although there were more events this week than in previous weeks, the currently poor liquidity in the market has not fundamentally changed. In an environment of poor liquidity, small amounts of capital can easily influence many coin prices, and dramatic increases and decreases have become increasingly common. This is not a good time to invest for most individual investors, and risk control is especially important.