The major
debate in the markets at the moment is the inflation tolerance of major central
banks. Most analysts see the Federal Reserve (Fed) being comforted with a 2-3%
annual inflation rate in the case of high recession risks. The rest are
expecting further monetary tightening even in the case of economic decline.
They think central bankers are now reluctant to react to every economic trouble
with interest rate decreases. Investors expect the Fed to lower its interest
rate to 4.5% by the end of this year. Thus, any major speculative activity will
be nearly impossible with such high borrowing costs.
Investors
were betting for a 150-basis points interest rate decline from its supposed
highs at 5.25%, but now they see rates only going down by 75-basis points by
the end of 2023. If the Fed does finally mange to convince investors about the
irreversible tight monetary stance for this entire year, the Dollar has major
chances to move up. Speculative short positions for the Greenback have been
removed, while opening up for other assets. According to Bloomberg for the
first time in 2023 hedge funds are now betting non-Dollar assets will
deteriorate against the Dollar-denominated assets.
All these
considerations should be kept in mind as no risky assets rally is possible
without solid fundamentals. If the Dollar does rally, cryptocurrencies are
unable to follow. BTC prices are gravitating to $20,000 per coin with a
possible decline towards $15,000. There is no major evidence that the situation
may develop in the other direction. No fundamental news to support the rally
can be seen but what is seen is a possibility of a long-lasting correction. The
information environment is dead calm. Some minor positive developments could be
found in ETH 2.0 where deposit inflows became positive for the first time since
after the users were first allowed to withdraw deposits from staking.
All-in-all,
the bullish season is seen to be drastically delayed.