Digital Assets Morning Call: August 16 2022

Written by Robert Lynch
on August 16, 2022

Steadier bias in crypto token prices with focus on China and the US dollar

Crypto token prices have steadied in more subdued trading, but retain the bulk of recent gains

More news on potential China policy initiatives to support the economy could reduce some downside risk to global growth

The US dollar has started to recover from the past month’s pullback a move that, if extended, could pose some headwinds to Bitcoin

Quiet crypto news flow keeps focus on performance of risk assets

Bitcoin and Ether are little changed on the session as trading activity has turned more subdued amid a lack of market-moving news or data. That said, both tokens continue to hold the bulk of their recent gains, consistent with the generally positive performance in risk assets, with the Nasdaq Composite Index rose to its highest level since April on Monday.

We continue to expect the prevalence and swings in risk appetite to provide shorter term direction for crypto token prices, and particularly so when other crypto-specific market drivers are lacking.

Reports indicate China ready to take more measures to support economy

Yesterday we noted the softening in some Chinese economic indicators and the surprise policy easing measures by the China’s central bank in response. Overnight there were additional indications that authorities may take further action to support the economy.

A report in the Financial Times said government authorities may order state run banks to guarantee the bonds of some property developers, a move that could address a key weakness (property sector bad debts) that has evolved in recent months. Separately, Reuters reports that officials from the state planning office said authorities will boost demand and accelerate infrastructure construction.

These reports, following on the policy rate cuts on Monday, highlight China’s ability and willingness to take forceful measures to support economic growth, when conditions warrant. That is an important distinction for global financial markets, including crypto markets, to recognize. By contrast, the flexibility and agility of western style democracies to respond to economic stresses tends is more limited (except in extreme situations, as seen at the start of the covid pandemic).

China’s impact on global growth should not be underestimated

It remains to be seen how effective these and other measures will be in supporting China’s economy. To the extent that authorities there can engineer a better economic outcome in the months and quarters ahead, it would reduce a considerable downside risk to global economic growth. And that would be a positive development—or at least would remove some downside risk—for financial and crypto assets.

As the Chinese yuan weakens, the US dollar gains

Another crypto-relevant development related to China’s policy easing was the downward pressure that the policy rate cut put on the yuan. The consequence of that is the US dollar has rallied, hitting a three-month high versus the yuan, with USD-CNH rising from 6.73 to 6.81 on Monday.

For crypto markets, the US dollar’s performance needs to be monitored, as it often moves inversely to crypto tokens, particularly to bitcoin. That due in part to the notion that crypto currencies such as bitcoin offer a hedge to fiat currency debasement, given its finite issuance and independence from government control. That theory can be debated, but it nonetheless carries some credence with a number of crypto market investors and participants. and therefore needs to be considered.

Bitcoin and other tokens need to monitor US dollar movements

Against that backdrop, it is worth noting that the dollar had been trending lower for the past month, with the Dollar Index falling 4.6% from its July 14 peak through August 11. That period also concurred with gains in crypto tokens generally, particularly ether (which has been boosted more by progress on the merge) but also including bitcoin.

In just three sessions the dollar index has now recouped about half of those losses. If it continues to gain, it would be something for crypto markets to take note of, as it could present headwinds to token prices, particularly as the extended rallies in bitcoin and (especially) ether, could leave them more exposed to negative news.

Original source:


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.