The cryptocurrency market has been on a wild ride over the past few month. With Bitcoin and other digital assets reaching new highs before encountering challenging resistance.
Prices are slipping. But despite this temporary setback, the long-term outlook for cryptocurrencies remains bullish. With several key factors signalling a potential rebound in the near future. Here are the top three reasons why crypto prices are slipping today, but will come back stronger.
Triple A Quarterly Earnings Reports
Big tech giants Apple, Alphabet, and Amazon announced their 4th quarter earnings results. Shares in all three companies are declining.
The post-COVID earnings paint a picture of strained supply chains, struggling labor markets, and fragile consumer demand.
Apple posted its first decline in quarterly revenues in 3.5 years. Quickly blaming the dip on a Chinese assembly plant that delayed iPhone deliveries. Tim Cook attempted to reassure markets that production is now back to normal.
Alphabet – Google’s parent company – reported a contraction in quarterly ad spending for only the second time in its history. This was explained as a deacceleration of the pandemic-fuelled boom in digital services recedes. It comes as Alphabet announced 12,000 job cuts. With anticipated incurred costs in the billions as a result of headcount reductions and office space reduction.
Amazon‘s biggest profit driver, the AWS division, saw its growth slow as AWS clients cut back on spending. Yet, stronger-than-expected sales from Amazon’s e-commerce platform during the 2022 Christmas shopping season helped. Mitigating the loss from AWS’ quarterly earnings.
Powell’s NFP numbers
The latest Nonfarm Payrolls (NFP) numbers have sent shockwaves through the markets.
The US Bureau of Labor Statistics revealed that NFP rose by an impressive 517,000 in January, far exceeding expectations of 185,000. This marks a sharp acceleration in job growth, proving the labor market to be persistently resilient.
The annual wage inflation, as measured by Average Hourly Earnings, came in at 4.4% compared to the expected 4.9%. This moderation in wage gains could give the Federal Reserve some comfort in its fight against inflation.
The initial market reaction was intense, with US stock index futures falling sharply and US bond yields surging. The dollar also gained strength, but major currencies had a choppy session as risk remained on the defensive.
The NFP numbers have raised questions about the future of the Fed’s rate hike cycle. After Chair Powell’s comments earlier this week, some believed there would only be one more rate hike. But these numbers suggest otherwise. The fears are that the Fed may do too much, pushing their target rate well above 5% and leading to a slow recovery.
Others believe that this NFP gives the Fed more fuel to continue hiking and that they will have more leeway to do so. The markets are interpreting Powell’s comments as a bit dovish, but this latest NFP may change that. The markets are on edge, waiting to see what will happen next.
Crypto Rally Fatigue
The recent bitcoin and cryptocurrency rally could be losing steam. Signs of fatigue are starting to show. Despite January being a strong month for crypto, with the Federal Reserve’s decision boosting all risky assets.
Bitcoin may struggle to break through resistance at the $25,000 level, as gunpowder dwindles.
Analysts have noted a divergence between Bitcoin’s higher highs and lows and its volume since mid-January. A common signal for fatigue. However, it’s not all bad news for the largest digital asset.
Bitcoin has rallied 40% in just a few weeks.
Reaching its highest levels in five months and wiping out losses that came after the FTX exchange bankruptcy in November. Some traders are calling it a turning point in the brutal bear market, which saw Bitcoin lose two-thirds of its value and hit a multi-year low.
Investors are feeling optimistic about the improvement in risk sentiment for high-risk assets.
Cryptocurrencies rising along with the Dow Jones Industrial Average and S&P 500 is a good sign.
Things could improve more if inflation is past its peak.
Enabling the Federal Reserve to be less aggressive with interest-rate hikes. This was the most significant headwind for risky assets like crypto last year.
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