Last week saw a strong outperformance of Cryptocurrencies over the major US Equity markets. The NASDAQ index closed higher by (NASDAQ⬆️4.8%) at $11.079 and S&P 500 higher by (S&P500⬆️2.7%) at $3.999, while The Ethereum cryptocurrency closed the week more than (ETH⬆️20%), closing at 1.552 USDT on Sunday. Bitcoin pathed a similar way as Ether and ended the week at 20.881 USDT, higher by more than (BTC⬆️20%).

The rally in both markets came because of a confirmed drop in US inflation for December 2022, dropping to 6.5%, with core US CPI dropping to 5.7% (see chart below). The US consumer inflation continued cooling in December 2022 and the reading came exactly as top economists expected. It dropped from 7.1% p.a. and 6.0%, respectively, from the previous month. Regardless of the lower US CPI, the Fed is expected to raise fund rates again in early February. However, the market is now pricing a lower hike of 0.25% instead of 0.50%. We forecast the YoY US CPI for January 2023 dropped further to 6.3%, with core CPI dropping only slightly to 5.6%.

Market Performance

Right after the US CPI report was published last week, the markets did not move much. However, the markets began to move higher up later during that day and cryptocurrency market was then aggressively pushed further up because of record short liquidations on crypto exchanges. While the cryptocurrency market indicates bullish momentum, the larger challenges like looming crypto legislation, concerns of centralized exchange reserves and potential contagion stemming from Digital Currency Group (DCG)’s legal issues could label the most recent rally as temporary.

The FED had closed the 2022 with a clear hawkish tone, forecasting the fund rates will reach above 5.1% in 2023 (FOMC’s median), with almost 5.5% as the highest-level forecast. All eyes will be on the Fed now — if they raise by only 0.25%, then they are expected to use their language wisely and indicate that we are still far away from victory. The core US CPI is still far too high, and the most recent drops do not justify for a more aggressive end to tightening.

The Digital Asset market sentiment (Crypto Fear & Greed Index) went up 20 points to 45/100, indicating Fear. The Total Cryptocurrency Market Cap went up to 982 billion, almost ⬆️20% higher compared to a week ago. Ethereum (ETH)’s Dominance strengthen by more than ⬆️2.5% to 19.3%, while Bitcoin (BTC)’s Dominance strengthen to 41.0%, which is more than ⬆️3.5% higher than a week ago.

WHAT TO WATCH FOR: The next monetary policy meeting for the FED: January/February 31–01st, 2023 and for the ECB: February 02nd, 2023; US CPI for January 2023 will be released on February 14th, 2023.

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