Market research report: Stocks race to all-time-highs on the back of dovish FED but crypto retreats

Crypto prices saw one of its largest dips for the year after the price of BTC flashed dumped last Monday, while a slightly hotter-than-expected CPI released on Tuesday ruffled some feathers amongst short-term investors who exited the market possibly due to the year-end and the FED meeting event risk. 

Borrowings amongst altcoins surged early week as airdrop farmers on several popular DeFi protocols borrowed heavily to short the market in order to generate trading volume to gain points to get future airdrops. This caused a wide price correction amongst the altcoins that had recently seen huge gains, like AVAX and SOL, which have been overbought. 

The market wide correction was beneficial as it managed to reset the open interest and funding rates back to neutral territory just in time for the FED meeting on Wednesday, when the FED not only held rates unchanged as expected, but FED Chief Powell gave risky assets the icing on the cake by commenting that with inflation falling much faster than previously anticipated, the FED has room for more rate cuts in the coming year. 

Most officials now expect three rate cuts in 2024 as inflation moves toward a 2% target. FED Governor Christopher Waller even said the central bank could theoretically start cutting interest rates in the spring if inflation performs particularly well, which gave investors a strong signal to start loading up their longs. 

Crypto prices rebounded strongly post FED meeting, which saw BTC briefly touch $43,000. Altcoins also followed suit with an even stronger recovery, where many have completely erased Monday and Tuesday losses by the end of the week. Amongst the top performing coins, AVAX and INJ stood out as the strongest players that carved out even higher prices than before the early week flash dump, while most other altcoins, including ETH, did not manage to recover higher. The fact that neither BTC nor the majority of altcoins could make new highs was a tell-tale sign that the two-month rally was getting exhausted as we head into the final two weeks of the year which have traditionally been bearish. 

As late leveraged longs got liquidated and short term traders took profits, long-term whales were still seen to be accumulating BTC.

Whales loaded dips but short-term profit taking in play

Large BTC whales are still taking dip opportunities to load up their BTC bags. Last week, we  witnessed a large volume accumulation of around 150,000 units of BTC, one of the sharpest increases of purchasing within a week in BTC’s history, underscoring the level of confidence long term whales have over the price trajectory of BTC in the days to come. 

Market research report: Stocks race to all-time-highs on the back of dovish FED but crypto retreats - BTC large whale holdings

However, as the week and the main trading calendar drew nearer to the year-end holiday season, an increase in selling pressure was seen throughout the market, as traders quite naturally took profits and started to wind down their trading activities. 

The highest ever sell ratio was spotted immediately after the FED meeting spike, which could have prevented the price of BTC from breaching the $45,000 mark. The selling eventually took the price of BTC down from $43,000 to around $41,000. 

Market research report: Stocks race to all-time-highs on the back of dovish FED but crypto retreats - BTC taker sell ratio

CME gap could be haunting BTC 

As there is a CME gap at around $38,900, most investors will be watching to see if the price of BTC comes down to close the gap in the coming two weeks as some investors think that most price gaps in any trend have to be closed before the trend can continue. In this case, for the current uptrend in the price of BTC to be able to continue rising substantially, many investors think BTC’s price needs to come back down to close the gap at around $38,900. This fear of the gap could be one reason why the price of BTC had failed to pump higher after the FED meeting even when stocks were making new all-time-highs. 

For altcoins, the year-end profit-taking appeared to have less impact last week, as many altcoins continued to move higher even when BTC was retracing. However, they too came under aggressive profit-taking this past weekend, with retracements of around 10-50% seen in coins that have been up several folds over the past two months. This retracement is expected to continue into the final two weeks of the year, however, there could still be random pockets of pump and dump expected to occur as trading volume dies down. Furthermore, with lower trading volume may come higher price volatility and as such, leveraged traders may need to take note of and manage your risks proportionately. 

Market research report: Stocks race to all-time-highs on the back of dovish FED but crypto retreats - Altcoins Fading

Some examples of random pumps include ICP and WLD, which saw sudden 50% overnight pumps over the weekend, which were followed by an equal magnitude dump back to pre-pump prices. 

Crypto back alive in Asia

As crypto regulations start to gain more clarity over the last couple of years in Asia and high inflation grips most of Asian economies, there has been an increase in crypto trading activities in Asia, with price movements in the early Asian trading session recording the highest growth in 4Q23, with the bulk of flows being purchases. 

According to the diagram below by Ark Investments, it is noted that the Asian trading session has witnessed the sharpest price increases in recent times, a phenomenon which traders may want to take note of to increase your trading alpha.  

That said, the US trading session has seen the most consistent demand over the past year, a trend which is likely to continue as the chances of BTC spot ETFs increase. 

Market research report: Stocks race to all-time-highs on the back of dovish FED but crypto retreats - BTC timezone

US stocks rally to record highs as rate cuts expected

Tuesday’s release of slightly hotter than expected CPI numbers did nothing to foil the stock market rally, as US stocks continued to rise to make new highs with traders trying to front-run the FED, which was expected to be dovish. 

Traders were not disappointed as the FED kept rates unchanged and signalled at least three rate cuts next year due to inflation falling faster than expected. The central bank also formally lowered its inflation forecast for 2024, seeing a 2.4% rate, down from its previous 2.6% forecast, giving traders ammunition to go piling up the long bets. By the end of the Wednesday session, the Dow already made an all-time-high by piercing the 37,000 mark for the first time. 

US yields toppled post the dovish FED remarks, with the 10-year Treasury breaking below 4%, leading to a big dollar selloff.  

Market research report: Stocks race to all-time-highs on the back of dovish FED but crypto retreats - US yields

Meanwhile the Bank of England and the ECB both kept rates unchanged, resulting in an even bigger drop in the dollar in relative terms. By the end of the week, the DXY lost more than 2%. 

Gold gained about 0.73% on the back of the weaker dollar, while Silver edged up around 0.5%. Oil prices traded higher by around 1%, its first week of gain after seven consecutive weeks of losses after the EIA raised its 2024 demand outlook. 

This week, it will be quiet on the economic front in the US, with only the final 4Q GDP figure that will be released on Thursday, however, that is not expected to move the markets. In terms of central bank meetings, we will see the Bank of Japan meet for the last time this year late Monday before trading activities start to level off for the Christmas weekend as traders are expected to have already taken good profits this year and are not expected to increase risk until after the new year. 

Risk Disclaimer
Investing in or trading gold or other metals can be risky and lead to a complete loss of capital. This guide should not be considered investment advice, and investing in gold CFDs is done at your own risk.
The information provided does not constitute, in any way, a solicitation or inducement to buy or sell cryptocurrencies, derivatives, foreign exchange products, CFDs, securities, and similar products. Comments and analysis reflect the views of different external and internal analysts at any given time and are subject to change at any time. Moreover, they can not constitute a commitment or guarantee on the part of PrimeXBT. The recipient acknowledges and agrees that by their very nature any investment in a financial instrument is of a random nature and therefore any such investment constitutes a risky investment for which the recipient is solely responsible. It is specified that the past performance of a financial product does not prejudge in any way their future performance. The foreign exchange market and derivatives such as CFDs (Contracts for Difference), Non-Deliverable Bitcoin Settled Products and Short-Term Bitcoin Settled Contracts involve a high degree of risk. They require a good level of financial knowledge and experience. PrimeXBT recommends the consultation of a financial professional who would have a perfect knowledge of the financial and patrimonial situation of the recipient of this message and would be able to verify that the financial products mentioned are adapted to the said situation and the financial objectives pursued.

Other news