Cryptocurrencies recover after a catastrophic week

Souring risk sentiment this week hit crypto markets hard after the collapse of FTX. Uncertainty over the US mid-term elections and renewed lockdowns in China have added further pressure on crypto markets. Risk sentiment improved on Thursday, after the US inflation print for October was lower than expected, diminishing global recession concerns.

Bitcoin price on Thursday started at the $15,500 level, its lowest price in two years. Bitcoin price climbed during the day though reaching $18,000. If BTC declines, support can be found again at $17,600, while resistance may be encountered at the psychological level of $20,000 and higher up near $21,000. 

Ethereum traded near $1,070 early on Thursday but climbed to $1,300 later in the day. If Ethereum's price declines, it may encounter support at $1,190 and further down at the psychological level of $1,000, while if it increases, resistance may be encountered near the psychological level of $1,500 and further up at $1,660.

Cryptocurrencies plummeted after the FTX cryptocurrency collapsed earlier this week. The FTX token faced liquidity issues, triggering a generalized crypto market sell-off. On Monday, Changpeng Zhao, the CEO of Binance, stated that the exchange will liquidate all the FTT holdings in its books. However, an agreement was reportedly reached later on Tuesday for Binance to acquire FTX and absorb its losses. Late on Wednesday, it was announced that Binance backed off from the deal on reports that the US Justice Department would investigate FTX. As it became known that the deal fell through, crypto markets posted heavy losses. 

Cryptocurrency prices are pushed down by aggressive rate hikes. As central banks raise their interest rates, moving towards an increasingly hawkish fiscal policy, recession fears grow, reducing risk appetite. The US Federal Reserve hiked its interest rate by 75 basis points at its monetary policy meeting last week. It is uncertain, however, whether the Fed will continue its aggressively hawkish policy, especially in light of October’s cooling inflation. Market expectations are currently in favor of a 50-bps rate hike in December and a 25-bps hike in January. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate. 

US election uncertainty also weakened cryptocurrency prices. The US mid-term Congressional elections took place on Tuesday and concerns that the Democratic party might lose control of Congress leading to political instability in the US are promoting a risk aversion sentiment.

BTC/USD 1h Chart

ETH/USD 1h Chart

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Written by:
Myrsini Giannouli

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