Macro crypto currency market outlook

Bitcoin remains confined to a well-defined downtrend since topping out at a record high in late 2021. However, at this stage, there are signs of the formation of a double bottom on the weekly chart. If the market can continue to hold up above the yearly low and extend the recovery run back through the August high, it would trigger the double bottom formation and open the door for a measured move upside extension towards a pattern objective in the $33,000 area. At the same time, inability to push back above the August high will leave the focus on the downside and leave open the possibility for deeper setbacks in 2022.

We saw an impressive and welcome turnaround in the month of October. Ether was up some 20% on the month, getting a boost from renewed risk appetite in traditional markets, while bitcoin also performed well, up some 6%. Perhaps even more impressive was the surge in volume towards the end of the month, this after several months of anemic activity. Of course, the break of some tight ranges and a concurrent uptick in volatility were very helpful in contributing towards the higher volumes.

Fundamentally, a lot of the recovery was attributed to pressure from traditional market participants on the Federal Reserve. In the month of October, we saw a shift in sentiment towards the outlook for Fed policy, with the equity market willing its way back to the topside as it priced in a less aggressive Fed policy track. Whether or not this ends up proving to be the case is another question, and one we will get more clarity from when the Fed makes its next policy decision this week. Nevertheless, correlations between risk sentiment and crypto have been there in 2022 and the uptick in sentiment has helped to prop crypto back up.

There have also been other contributing factors to this renewed demand in crypto. The market has been waiting for regulatory clarity and things have been moving at a faster pace in this direction. There had been plenty of concern around overregulation in the space. But regulators have taken their time and for the most part have recognized the value in crypto and what it brings to the table, understanding they don’t want to get it wrong and ultimately stifle technology and innovation. And so, moving forward with regulation has been more welcome than not, as many market participants believe the regulation will be there to protect far more than it might be there to compromise the benefits of the asset class. Regulatory clarity is necessary for wider institutional adoption, and the good news here is that institutional acceptance of crypto has been trending higher in 2022, despite the fallout in prices.

Looking ahead, as already mentioned, we believe a lot of the direction in the crypto market for the remainder of 2022 will be heavily influenced by global sentiment and the outlook for Fed policy. Technically speaking, we’ve highlighted the bullish case for crypto by way of a bitcoin chart that could be showing early signs of a double bottom. For this to play out, we would probably need to see risk sentiment and US equities hold up into the end of the year. If, however, the Fed sticks to its higher for longer policy track, and if inflation continues to race higher, it could open another wave of intense risk off flow, which would probably negate the more immediate bullish case and expose the crypto market to deeper setbacks in 2022.