Crypto market opens the week with a pullback, but analysts say not to worry

Cryptocurrencies retreated on Monday, erasing some of the gains recorded last week. Despite this, bitcoin and ethereum managed to stay above key levels.

Bitcoin lost around 6.5% in the last 24 hours at the time of this publication, recording an 8% drop from its highs last week, taking the token above $44,000 for the first time since April 2022. The largest cryptocurrency was still trading above $40,000 on Monday. .

Ether also declined, losing more than 7% in the last 24 hours on Monday afternoon in New York, but managing to hover around $2,200.

“It looks like this is a leverage adjustment, which can be painful but is generally good news,” said Noelle Acheson, author of the “Crypto is Macro Now” newsletter. “Last week, signals from the cryptocurrency futures market began to suggest that leveraged speculation was intensifying. We can see this in funding rates, which are what traders pay to take long or short positions in crypto perpetual futures.”

Read more: Bitcoin Price Falls Below $37,000 as Markets Await ETF News

Digital asset investment products recorded their 11th consecutive week of positive inflows last week, with more than $43 million coming in between December 3 and 9. This was a decrease from previous weeks, however last week saw a "notable increase in short positions." inflows due to recent price appreciation and perceived downside risks,” CoinShares researchers said on Monday.

“Bitcoin remains the main focus for investors, with inflows of $20 million, bringing year-to-date inflows to $1.7 billion,” CoinShares analysts added. "While bitcoin short positions saw inflows of $8.6 million, presumably a proportion of investors view the current price increases as unsustainable."

Monday's setback aside, bitcoin and ether are still expected to close the year very successfully. Bitcoin (btc) is currently up close to 150% year-to-date, while ether (ETH) has increased more than 80% since the beginning of 2023.

Analysts say markets were due for a correction, and this week's Federal Reserve rate decision could put traders back into a risk-on mindset. On Monday afternoon, futures markets were calling for a near 100% chance that the Federal Reserve would not change rates. according to the CME Group.

The European Central Bank is scheduled to update its interest rates on Tuesday and the Bank of England is scheduled to publish the summary and minutes of its December meeting on Thursday.

"While we believe that the US Federal Reserve (as well as the ECB and the Bank of England) will keep the door open to further tightening, if necessary, we believe that the underlying tone and the Fed's updated economic projections should reinforce the view that the next step will likely be a cut. "with the interest rate 'dot plot' potentially revised downwards," Corpay analysts wrote in a note on Monday. "In our view, this rate of 'moderate' inclination, together with a weakening of US inflation and the pulse of retail spending, could put downward pressure on the dollar.

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