Cryptocurrencies on the rise as risk appetite returns

On Monday, Bitcoin and Ethereum struggled to keep key support levels of $30,000 and $2,000 respectively, amid a stock market sell-off. On Tuesday however, cryptocurrencies caught a much-needed break, as market risk appetite started to return. Global stock markets climbed on Tuesday and most major cryptocurrencies were on the rise. 

High-risk assets were boosted on Tuesday, as risk appetite started to grow. Reports of easing lockdown restrictions in China have raised the global economic outlook. Stock markets rebounded, led by tech stocks. If the market sell-off is resumed though, it may give rise to investors panicking and dumping cryptocurrencies, which may lead to a liquidation cascade. 

Bitcoin tested its $30,000 support on Tuesday, before climbing to 30,500. If Bitcoin price declines, support may be found near $19,400, while resistance may be found at $40,000 and further up near $48,200. 

Ethereum also climbed on Tuesday, trading above the $2,000 level support and reaching $2,100. If the Ethereum price declines, further support may be found near $1,700, while resistance may be encountered near $3,174.

A strong risk-off sentiment has prevailed over the past few months, driving investors to safer assets and dampening the appeal of cryptocurrencies. In the past six months, the cryptocurrency market has lost almost $2 trillion. A massive sell-off of tech stocks was triggered last week, sending cryptocurrencies into free fall. Most major cryptocurrencies plummeted, as crypto markets have been following the overall trends of stock markets and especially of tech stocks. 

Stablecoin TerraUSD collapsed last week, losing its dollar peg and trading as low as 5 cents, raising fears that other cryptocurrencies will follow in its wake. Luna has also crashed, losing 99% of its value. The Luna Foundation Guard has sold almost all of its recently acquired BTC reserves as the foundation’s Terra collapsed. The LFG sold more than $3 billion in Bitcoin, putting more pressure on the Bitcoin price.

Stablecoin Tether also lost its $1 peg briefly last week after suffering $3 billion in withdrawals, falling to 0.95 before regaining its dollar peg. Tether is the largest of the world’s so-called stable coins and its fall has put to question the digital assets’ stability. If its price continues to fall it may lead to market contagion, exasperating cryptocurrency sell-off.

In the past couple of weeks, the Fed raised its benchmark interest rate by 50 base points, its highest rate hike in 22 years and the BOE also increased its interest rate by 25 bp. The shift of major central banks towards a more hawkish fiscal policy has been putting pressure on cryptocurrencies over the past few months. Most major Central Banks are turning towards a tighter policy and a return to pre-pandemic interest rates, driving cryptocurrency prices down. The dollar reached a 20-year high last week, but softened this week, further boosting the appeal of high-risk assets such as cryptocurrencies. 

BTC/USD 1h Chart

ETH/USD 1h Chart

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Written by:
Myrsini Giannouli

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