Mati Greenspan, Senior Market Analyst at FX broker eToro, has provided his daily commentary on traditional and crypto markets for January 11, 2019.
Highlights include:
- Bitcoin Plummets Within Range: Bitcoin dropped 12% yesterday, but stayed within the range of $3,550 to $4,200 that has been established over the past month. The movement was sudden, but not significant.
- Government Shutdown Could Blind Investors, Fed: By tomorrow, the government shutdown will have been the longest in US history. One of the departments closed is the Consensus Bureau, the source of economic data such as retail sales and GDP. Without this data, investors, economists and the Fed will be significantly affected.
- Dow Watches Fed Closely: There was a noticeable drop in the Dow Jones yesterday as FOMC Chairman Jerome Powell discussed the Fed’s balance sheet. Although nothing critical was discussed, the topic has become a trigger for markets. As the Fed moves away from forward guidance, markets may be able to move more independently.
- IBM Quantum Computer Won’t Impact Crypto: IBM (NYSE:IBM) recently announced the first commercially available quantum computer, the Q System One. It likely won’t affect the Bitcoin network, due to the low computing power of the model and quantum resistance solutions planned in Bitcoin’s development roadmap.Go
Traditional Markets
Jerome Powell, the Chairman of the US Federal Reserve Bank, answered questions at an event yesterday and clarified the Fed’s position on monetary policy, just as the markets were hoping.
The Fed is currently the biggest player in the market, so this is a pretty big deal. Jay, as his family calls him, stressed caution and patience above all when dealing with interest rate hikes. The markets were previously expecting two or three hikes this year and it seems like Jay is trying to bring them down to one or less.
There was however, a noticeable drop down in the Dow Jones when they discussed the Fed’s balance sheet. Not that anything critical was really discussed but it seems to have become a trigger word for the markets.
The truth is that according to the explanations given last night, it doesn’t seem like they have any plans at the moment and rather will act according to the situation when the time comes. It’s a bit disappointing on one hand because “forward guidance” was a theme stressed by Powell’s predecessors, Bernanke and Yellen. On the other hand, perhaps now we can quit Fed watching and let the markets be a bit more independent.
Still Shut
By tomorrow, this will have been the longest government shutdown in US history.
Jay Powell also gave a rare comment on this last night saying that usually, shutdowns don’t have a great impact on the economy because they don’t last very long. However, if we were to see a prolonged shutdown the implications could be very big indeed.
For example, one of the wings currently closed is the Consensus Bureau, who is responsible for putting out critical economic data like retail sales and GDP. If those stats aren’t published, investors, economists, and even the Fed will essentially be flying blind.
Bitcoin’s new Range
You’ve probably already noticed that Bitcoin and the other cryptos took a sharp plunge yesterday. Actually, two sharp plunges.
As we discussed in yesterday’s update, there appear to be no specific reasons for this drop and it’s more likely due to the lack of liquidity inherent in the crypto markets, possibly mixed with some large orders being placed on exchanges.
If yesterday’s explanation of no specific explanation annoyed you in any way, you’re really gonna love this next one.
The total movement of 12% from peak to trough was actually insignificant. All we’re seeing is a movement from the top to the bottom of the range. Check it out. Here we can see bitcoin’s price since it first fell below $6,000.
As we’ve been discussing since mid-November, the current range is from $3,000 to $5,000 (dotted blue lines). It seems now, that bitcoin has opened a new mini-range within that from $3,550 to approximately $4,200 (yellow lines).
Movements within a range can sometimes be sudden like we saw yesterday, but unless there’s a breakout of the key levels there really isn’t much to write home about.
Wishing you a relaxing weekend.
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