First Mover Americas: Macro Retakes Front Seat, Pushing Bitcoin Down Below $21K

• Price Point: Bitcoin trades in line with U.S. equities, briefly dropping to levels below $21,000 on Monday morning. Some analysts are still optimistic for the wider market, which might give the cryptocurrency some momentum. Other analysts see BTC and ETH remaining choppy in the short term.
• Market Moves: Bitcoin fell over 10% last week, its biggest drop in two months. Analysts say the price slide has put bears in control ahead of the U.S. Federal Reserve's annual economic symposium in Jackson Hole, Wyoming, on Friday.
• Chart of the Day: Ether-bitcoin volatility spread widens.

This article originally appeared in First Mover, CoinDesk’s daily newsletter putting the latest moves in crypto markets in context. Subscribe to get it in your inbox every day.

Price point

It looks like macroeconomics has retaken the front seat as inflation fears caused jitters in the market on Monday. Bitcoin (BTC) dipped to levels below $21,000 at around 09:30 am GMT, with a sharp sell-off following the previous week’s surge.

U.S. equity futures retreated along with European stocks as traders are pessimistic about the prospect of further interest-rate hikes. Although most investors think sentiment is looking fragile, Tom Lee, head of research at Fundstrat, said in a morning note to investors that he expects markets to rally.

“While there remains a lot of uncertainty regarding macro, we think underlying inflationary pressures are easing, which in turn means [the U.S. Federal Reserve] has less work to do,” wrote Lee. “This is not necessarily the consensus view. But it is a view increasingly transmitted in the bond market.”

Ether (ETH), the second-largest cryptocurrency by market value, has dropped to $1,500, down 17% over the last seven days. Ether reached levels near $2,000 last week on the back of optimism ahead of the Ethereum blockchain’s upcoming Merge but has since been hit as crypto’s correlation with equities strengthened.

Short term, ether and bitcoin will trade in choppy territory with a negative bias, according to Matthew Dibb, co-founder of Stack Funds.

Dibb expects the crypto market to stabilize heading into September.

“Longer term, the Merge is still a bullish event, similar to the lag that BTC experiences post every halving.”

In the news, more than 50 people gathered in Amsterdam's Dam Square on Saturday to protest the arrest of blockchain developer Alexey Pertsev, who was arrested Aug. 10 on suspicion of involvement in the Tornado Cash protocol that was sanctioned earlier this month by U.S. authorities.

And Morgan Stanley said in a report on Friday that tightening in the crypto market has paused. While the market cap of stablecoins, an indicator of crypto liquidity, has stopped falling, demand for leverage has yet to start recovering.

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Market Moves

Bitcoin's 10% Weekly Drop Puts Bears in Control Ahead of Jackson Hole Symposium

By Omkar Godbole

Bitcoin (BTC) fell over 10% last week, its biggest drop in two months. Analysts say the price slide has put bears in control ahead of the U.S. Federal Reserve's annual economic symposium in Jackson Hole, Wyoming, on Friday.

The biggest cryptocurrency was sold as the Fed's July meeting minutes actively pushed back against hopes of liquidity easing in 2023. Chatter about Jump Crypto selling ether spurred profit taking in the native token of Ethereum's blockchain.

Bitcoin's drop has broken technical charts and revived the bearish trend, according observers.

"Last week's slide has put the bears in the driver's seat. The market will take a while to reverse and would need good news," trader and analyst Alex Kruger told CoinDesk, adding that Fed Chair Jerome Powell is unlikely to offer good news later this week.

According to David Duong, head of institutional research at Coinbase, bitcoin's daily technical chart has flipped bearish and the cryptocurrency could continue to lose ground in the short term.

"BTC will likely retest support at $20,830 and $19,230 over the coming few weeks," Duong noted in the weekly markets commentary, adding that traders will be closely watching Powell's comments at the Jackson Hole symposium.

After last week's Fed minutes, there seems to be a consensus in the market that Powell will skew on the hawkish side during the Jackson Hole Economic Symposium. The annual gathering, sponsored by the Federal Reserve Bank of Kansas City, hosts central bankers, finance ministers, academics and financial market participants.

"Powell will likely try to take a more measured approach in Wyoming and emphasize that the tightening cycle isn't over yet," Duong noted. The Fed's monetary tightening has roiled the cryptocurrency market this year.

Michael Kramer, the founder of Mott Capital Management, wrote in a weekly markets update, "I would expect that Powell lays out quite clearly that the pace of future rate hikes may slow but that they have much further to climb and are likely to remain high for some time."

The Fed said in July that it would be appropriate to slow tightening at some point, triggering a relief rally in risk assets. However, according to Dean Peng, VP at Singapore-based digital asset management platform Metalpha, monetary policy operates with a lag. So, the central bank will likely stick to its hawkish script at least for some time.

The effect of higher interest rates on inflation will be evident in about six months. Peng said. "It is still too early to put in more calls for bitcoin at this time."

Read the full story here.

Chart of the Day

Ether-Bitcoin Volatility Spread Widens

By Omkar Godbole

• The spread between ether and bitcoin implied volatilities determined by options expiring on Sept. 30 has widened to over 30 percentage points, the highest since June 2021, according to data tracked by Genesis Volatility.
• It means two things: First, traders expect ether to see more volatility than bitcoin in the next five weeks or so, as the Ethereum Merge, the long-pending technological update, is likely to happen sometime in mid-September. Second, ether options are now too expensive relative to bitcoin options. Implied volatility has positive impact on option prices.
• The spread will tank if the merge proves to be a non-event.
• "Some traders are positioning themselves for a mean-reversion [in the spread], selling ETH against buying BTC long," options analytics platform Genesis Volatility said in a report last week.

Latest Headlines

• South Korea Plans to Tax Crypto Airdrop Recipients, Digital Times Reports:The government said crypto airdrops count as gifts under tax legislation.
• Morgan Stanley Says Tightening in the Crypto Market Has Paused: While the market cap of stablecoins, an indicator of crypto liquidity, has stopped falling, demand for leverage has yet to start recovering, the bank said.
• Bitcoin's 10% Weekly Drop Puts Bears in Control Ahead of Jackson Hole Symposium: Powell will skew on the hawkish side at Jackson Hole, analysts said.
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