The cryptocurrency market has experienced a surge in market capitalization over the past 24 hours, driven by traders’ anticipation of no monetary policy action following the release of positive U.S. inflation data. The combined market valuation of cryptocurrencies reached $1.035 trillion, with a 1.58% increase, encompassing top-ranking cryptocurrencies like Bitcoin (BTC), Ether (ETH), and Solana (SOL).
Crypto investors were pleased with the latest U.S. consumer price index (CPI) report, which indicated a 0.6% increase in August compared to the previous month. This marked the largest monthly rise in over a year, largely influenced by surging gasoline prices. However, when excluding food and energy costs, core prices only rose by 0.3%, slightly higher than the estimated 0.2%. Overall, core inflation remained on a downward trajectory, aligning with the Federal Reserve’s target of 2%.
Derivative market traders have revised their estimates for a rate hike pause in September, leading to a significant increase in the target rate probabilities for the Fed’s upcoming meeting. The likelihood of a rate hike pause has risen from 93% to 97% in just a week. Historically, stabilizing or lowering interest rates has been perceived as a bullish signal among crypto investors, potentially explaining the recent price rally in the crypto market.
Another positive development for crypto investors is the recent court ruling regarding FTX, a defunct crypto exchange. The ruling approved the sale of the exchange’s crypto assets, excluding Bitcoin, Ethereum, and other affiliated assets. These excluded cryptocurrencies contribute to approximately 70% of the entire crypto market valuation. The court ruling’s limitations on asset sales, combined with the exclusion of major cryptocurrencies, have alleviated concerns about potential selling pressure from FTX sales.
The recent gains in the crypto market are part of a short-term rebound that started on September 11th. During this rebound, the market’s daily relative strength index (RSI) dropped to 30, a threshold commonly seen as “oversold” by traditional analysts. This drop in RSI acted as a buy signal, contributing to the current market rally. This buy signal strategy has been prevalent in the crypto market throughout the year.
While the crypto market has experienced a rebound, it is essential to exercise caution as long as it remains below key exponential moving averages (EMA). The 50-day EMA, located near $1.08 trillion, and the 200-day EMA, situated near $1.06 trillion, serve as crucial resistance levels. Additionally, the market has been constrained by a multi-month descending trendline resistance since July 2023. Therefore, the ongoing rebound may continue until the market valuation reaches the trendline or the 50-day EMA, both converging at $1.04 trillion.
While the rebound is promising, there is a risk of a pullback before or after testing the trendline-EMA confluence. Such a pullback could result in a significant drop in the crypto market valuation, potentially reaching the range of $980-995 billion (the red area) throughout Q4.
The crypto market has experienced a surge in market capitalization, driven by positive U.S. inflation data and the FTX court ruling. Crypto investors have responded positively to these developments, contributing to the recent price rally. However, caution is advised, as the market remains below key resistance levels and faces a potential pullback. It will be crucial to monitor these factors closely to determine the market’s direction in the coming weeks.