Cryptocurrencies edge lower as risk sentiment sours

Crypto markets retreated on Wednesday on reduced risk sentiment. Rising geopolitical tensions and record-high inflation rates in the UK have pushed risk sentiment down. UK inflation hit a 41-year high in October, reigniting global recession concerns. Annual UK CPI climbed to 11.1% in October, its highest value since 1981, mainly due to the high cost of energy.

A missile landing in Poland on Tuesday threatened to bring the Russia-Ukraine war to a wider area and triggered an emergency NATO meeting on Wednesday. NATO Secretary General Jens Stoltenberg stated after the conclusion of the meeting that the deadly missile likely came from Ukraine’s air defense system. 

Bitcoin price edged lower on Wednesday, dropping to $16,400. If BTC declines, support can be found at $15,000, while resistance may be encountered at $18,150 and higher up at the psychological level of $20,000. 

Ethereum price also retreated, testing the support at $1,190 before paring some of its losses. If Ethereum's price declines, it may encounter support at $1,190 again 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.

Souring risk sentiment hit crypto markets hard after the collapse of FTX last week. The FTX token faced liquidity issues, triggering a generalized crypto market sell-off. Last week, Changpeng Zhao, the CEO of Binance, stated that the exchange would acquire FTX and absorb its losses. It was later announced, however, that Binance backed off from the deal on reviewing FTX’s books and on reports that the US Justice Department would investigate FTX. On Friday, FTX CEO Sam Bankman-Fried resigned and the company declared bankruptcy. These recent developments have undermined confidence in the crypto industry, giving rise to concerns of a cascading crypto crisis.

Uncertainty over the US mid-term elections and renewed lockdowns in China have added further pressure on crypto markets. Markets will be awaiting the US mid-term elections outcome this week. Votes are still being tallied and the battle for securing the Senate seems to be close.

Risk sentiment was somewhat boosted by cooling US inflation earlier in the week. The softer US PPI inflation print for October on Tuesday, combined with last week’s CPI report, showed that US inflation is cooling at a faster rate than expected. Reduced inflation is diminishing recession concerns, propping up risk assets.

Market expectations of future rate hikes were considerably trimmed after last week’s inflation report and were further diminished after Tuesday’s inflation print. As central banks raise interest rates, recession fears grow, reducing risk appetite. Market odds are currently between a 50-bps and a 25-bps interest rate increase in December. Rate hikes are expected to taper off in 2023 as the central bank moves into a stable interest rate.

BTC/USD 1h Chart

ETH/USD 1h Chart

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Written by:
Myrsini Giannouli

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