Digital Assets Morning Call: August 15 2022

Written by Robert Lynch
on August 15, 2022

Global economic developments and the potential fallout for crypto markets

Bitcoin and Ether prices slip marginally early in the week but hold the bulk of recent gains

Global economic conditions are softening and suggest some caution for financial markets, including digital assets, down the road

UK asset manager Abrdn is the latest institutional money manager gaining exposure to digital assets

Major crypto token prices are down modestly on the session but not before hitting new cycle highs and holding the bulk of their recent gains. Bitcoin (BTC-USD) traded to $25,214 overnight, its highest since mid-June, and in doing so briefly moved above the 100-day moving average, currently at $24,712. That continues to represent the next obvious resistance level, and a sustained close above that moving average would be a bullish development and likely draw additional buying interest from trend-following traders.

Ether (ETH-USD) hit $2,031 Sunday before pulling back towards $1,900 early in today’s North American session but also maintains bullish momentum evident in the series of higher highs and high lows established since mid-July (all price and chart data sourced from TradingView.com).

Macro focus shifts to global economic developments

The past week provided useful updates on the state of the US economy, including a tight labor market, and decelerating but still very high inflation. For crypto markets, the macro backdrop and outlook continue to be a critical input for token prices due the implications for central bank policy—which remains a key driver for risk assets—and also because the overall pace of economic growth ultimately impacts financial assets broadly.

Softer Chinese growth prompts central bank easing

This week brings more macro data for economies outside of the US. The second largest contributor to global growth after the US is China. Overnight, China eased monetary policy by cutting two key interest rates by 10 basis points.

The fact that China is easing policy while much of the rest of the world is tightening monetary policy is a noteworthy development. It comes as the latest round of economic data have come in weaker than expected, including business lending and retail sales. That comes alongside the documented retrenchment in the real estate sector, and the ongoing economic drag stemming from periodic covid-related lockdowns/restrictions that remain a risk going forward. And none of this is considering any of the potential geopolitical risks stemming from the rising tensions associated with Taiwan.

Japan’s economy grew less than expected in Q2

Separately, Japan reported that Q2 GDP came in weaker than expected, rising 0.5% quarter-on-quarter 0.7% expected) following unchanged growth n Q1 (revised up from -0.1%). Although the economy continues to expand, slowing global growth going forward is expected to weigh on Japan’s economy in the remainder of this year and potentially into 2023.

Europe’s economic stresses likely to worsen

In Europe, economic growth remains constrained as the war in Ukraine and lingering covid issues increase risk for recession. Energy is probably the biggest issue; Russia cut the supply of gas, driving already-high prices even higher. Higher inflation is a tax on consumers and businesses. Moreover, energy shortages risk rationing that also threatens to shutdown parts of the economy. Note too that this is all happening prior to the winter, when there could be a much bigger energy crunch and associated economic impact.

Global growth matters

Those rather downbeat assessments for the world’s largest economies outside of the US highlight a clear risk to global growth going forward. Global growth is not the only development that will matter to crypto token prices and digital assets broadly going forward. But it is none-the-less a critical consideration and one that argues for some caution about token prices when looking three, six or nine months down the road. Said another way, economic risks in the coming quarters suggest that it will be more challenging for crypto token prices to match the outsized pace of gains they have registered in the past two months.

UK asset manager buys stake in crypto trading platform

UK asset manager Abrdn purchased a stake in UK digital asset exchange Archax, a platform for institutional investors to trade cryptocurrencies and tokenized securities, according to a report in the Financial Times. An Abrdn spokesperson said that the eventual plan is to give clients access to its investment funds in tokenized form, as well as other assets that are less easily tradable, all on the Archax exchange.

Institutional adoption of crypto going in one direction

The move follows last week’s announcement that Blackrock will use Coinbase to give clients access to digital assets. All of this represents the ongoing institutional adoption of digital assets that will ultimately increase their footprint among investable assets, a positive development for many aspects of the digital asset space over the medium-term.

Original source: www.einpresswire.com/sources/u466736

Disclaimer:

Digital Asset Morning Call is for informational purposes only and does not constitute, either explicitly or implicitly, any provision of services or products by ALT 5 Sigma (“ALT 5”). Investors should determine for themselves whether a particular service or product is suitable for their investment needs or should seek such professional advice for their particular situation. ALT 5 Sigma. makes no representation or warranty to any investor regarding the legality of any investment, the income or tax consequences, or the suitability of an investment for such investor. ALT 5 Sigma does not solicit or provide any financial advice. This is at the sole discretion of the individual.

Robert Lynch

Robert Lynch

Head of Research and Strategy | Robert Lynch is an experienced financial market strategist, focusing on macro markets including currencies, interest rates, commodities and cryptocurrencies. He is trained and practiced in the analysis of economic developments, monetary and fiscal policy, political events and technical indicators in order to generate actionable investment solutions.