For months the Overall Crypto market cap has been ranging, we are now at a critical level that will show if previous support will remain strong.
What decides if this support holds, as it has done many times in the past 3 months has absolutely nothing to do with Crypto.
Most of the price action from previous months has been dictated by US inflation data and what the Fed says, nothing will change for the months to come.
I was going to post about each of the topics below seperately, im not great at explaning things and so i would rather just simplify it all into one post.
The Fed,
For months traders around the world have been looking for signs of an interest rate cut, many feel the US economy has already shown enough to warrant a cut but the FED holds tight.
Honestly i have 2 opinions about this,
1- The Fed is playing for time and they are in self preservation mode, The FED and Powell are just focused on the data they want to see, they are ignoring the warning signs of a possible recession/crash that could happen if consumer and small business debt , the housing market and labour market deteriorate further.
2- The Feds plan for a "soft landing" is working but now they are pricing in the "Donald Trump effect" and will hold rates higher in anticipation of that.
Donald Trump.
If Donald Trump wins the election he plans to lower interest rates, lower taxes, increase tariffs on imports and many other things that will lead to inflation(spending and costs), this might lead to the last Euphoric phase we have been waiting for in Crypto, it will also probably crash the market in the years after.
The US labour market is already showing signs of deteriorating and a lot of that labour market is made up of undocumented workers or asylum seeking workers, if Trumps mass deportation policy comes into effect it could have a huge impact on the labour market, if this happens Trump will blame Biden for allowing "these people" in and the democrats will blame Trump.
If the labour market collapses in the current US economy then the fallout will be massive, it will be recession or a crash.
US Treasuries(US Debt) - This matters for inflation.
The 2 biggest(Foreign) holders of US treasuries are Japan and China.
Japan-$1.1Trillion
China - $790 Billion
Japan,
I was going to do a full writeup of the Japanese economy and its fallout effect but basically for now it boils down to their treasury holdings.
Japan is stuck between a rock and a hard place, their economy is in huge trouble, they cant increase interest rates because they cant service their own internal debt if they do.
Japans economy has stagnated for 20 years but now with the huge difference in their 0% interest rate and Americas 5.5% interest rate their currency is declining at a rapid rate.
Japan imports most of its food and energy so its currency decline has a huge impact for an already struggling Japanese economy.
Japan has 2 options,
Option 1- They sell off 10s of Billions in US treasuries to pump into the YEN via currency intervention, this will not have a lasting effect and will basically be like burning the money, all it will do is create fear in the market like we have seen in the last week.
The BOJ has already intervened many times in the past, including this year, this led to a sharp price drop in the USD/YEN , the BOJ knows this will do little, is it purely to slow down trading against the YEN when it reaches certain levels.
Option 2 - Japan holds its US treasuries and does not intervene hoping the Fed lowers interest rates and brings them more in line with Japans interest rate.( there are so many reasons why this difference matters, outside investment, carry trading, the servicing fees on debt and treasuries.)
If the BOJ dont intervene and the threat of intervention stops slowing the decline of the YEN it could fall another 20-30%(or more) in the coming months
Basically Japan needs to either burn 10s of Billions to slow down the Yens decline in the hopes of US interest rate cuts or they need to watch the YEN freefall for the coming months and deal with the pressure of import prices that will bring.
Either way it doesnt look good for the Japanese economy, how far the fallout will be is yet to be seen.
China,
China has been dumping US treasuries for the last year, it is one of the reason the Gold price has increased so much, China has been offloading US treasuries and buying gold.
This dump of treasuries will not stop as trade tariffs and tensions increase between US and China
These long term US treasuries are toxic sludge, nobody wants them, China and possibly Japan dumping these large amount of treasuries only lead back to one thing and that is the US money printing machine, nobody will want them on the secondary market because the yield curve is inverted(short term yields offer more), the US has to buy them or they will default, the US is already in massive debt and already spends a huge part of their budget paying the interest on that debt.
If you ever wonder why the US government stopped scrutinizing USDT it could be because 80% of USDT funds are "claimed" to be in US treasuries(US debt).đ€
Basically the US government is trapped in a vicious circle of its own making.
The US economy and the USD has a massive effect worldwide whether we like it or not.
MICA
It is still yet to be seen how stable coins like USDT and others will be effected by MICA regulations, while MICA has already come into part effect there is still a window period that allow stable coins and CEXs to comply with MICA regulations, the full effect and any fallout will be felt within the next 6-12 months as these regulations come into full effect.
Mt.Gox and German Gov
Obviously most are aware of this sell pressure hitting the market, as per my understanding this Mt.Gox will be distributed over 3 months and not create an immediate $9 Billion in sell pressure.
All of these things are effecting the global market and the sentiment around Crypto, everything leads to uncertainty which is not great for Crypto.
I hold spot, unless we see sustained break below the lowest line i have put on the daily, weekly crypto MC, i will not panic.
Short term we need to see if a very solid area of liquidity and support holds.
I would not rush into any short term trades until after Friday, the jobs and earning data will likely decide what happens short term.
Also some people say BOJ might intervene tomorrow when the NYSE is closed which might cause a wider reaction on Friday(this is all hearsay)
I feel very lost at the moment, im sure many do.
I am happy to hold my spot portfolio and see how things play out in the next weeks-months.
Most of my portfolio is in BTC which i will hold regardless, if we see more worrying signs i might cash out some of my other holdings.
I will always post and update this.
Peace