In brief

  • Crypto's recovery stalled over the weekend.
  • The bounce back of the US economy is causing a shift away from growth assets to value ones.
  • The USD's increasing value is also seen as a negative sign for Bitcoin, but value projects like Ethereum will become more immune over time.

It was a mixed weekend for crypto markets. Heading into Saturday, news of Joe Biden’s $1.9 trillion stimulus bill passing the Senate helped lift crypto prices across the board. 

But come Monday morning, the new reality of increasing treasury yields, and the spectre of rising interest rates brought prices back down with a thud. 

Last week, the total market cap numbers had been steadily declining to lows of $1.4 trillion. As the stimulus package bill passed its final hurdle on Friday however, global crypto markets hit $1.6 trillion. 

Bitcoin’s price had been treading water around the $48,000 mark and then lept above $50,000 in less than 24 hours on the same news. But at the time of writing however, prices have pulled back below $50k. 

Ethereum managed to hold onto its gains over the weekend, finding support above $1,600. At the time of writing the price was 0.5% up.

The midcaps - project’s valued between $10-$40 billion - saw gains similar gains and losses. Cardano dropped 0.5%, Ripple 0.8% while Binance Coin gained 1.2%. 

While many crypto watchers were hoping for a continuation of the bull run that catapulted crypto prices into the trillions at the start of the year, there are broader concerns around market conditions that make crypto investing a riskier bet than normal. 

Murky futures 

As Asian markets opened on Monday, prices tanked - China’s CSI 300 dropped 3%. US futures markets also sank, and tech shares are struggling to find support anywhere at the moment. Why?  

On the news of Joe Biden’s bailout package, US Treasury yields began ticking up, alongside the value of the US dollar. While Federal officials were quick to point out on Friday that these changes were a sign of a stronger economic outlook for the US instead of rising inflation, volatility in the markets crept back in. 

Indeed, speculation around treasury futures - typically a marketplace with low volatility - reached fever pitch last week as a record number of short position futures contracts were taken out, according to Bloomberg

Investors are now turning back to the US economy in search of value stocks that were crippled by COVID, but are expected to bounce back in the coming months. What that means for the growth stocks, in particular tech stocks that surged during lockdown, is that their prices are now viewed as having little room left for growth, leading to a sell off. 

Growth stocks like apple are seeing a sell off as the US economy improves. IMAGE: Google

Another key factor likely to play out on crypto markets this week is the uptick in the value of the US dollar. Over the last year, Bitcoin has gained against the greenback as a result of the Fed’s bond buyback policy and increasing its national debt that led to a weakened dollar when compared to a basket of other currencies. 

This led to a flood of money away from USD and into other currencies, places like the Swiss Franc are seen as a safe haven when it comes to foreign exchange markets. Bitcoin and crypto also benefited as the narrative of Bitcoin being a better store of value than USD gained fans. 

But that tide is now starting to change. The rising treasury yields, and the improving economic outlook has created a strong bullish trend in buyers of US Dollars. 

The USD bulls are back. IMAGE: MarketMilk

Investors are now seeing that there’s money to be made in the US economy as it gets back on its feet. 

This narrative is likely to create increasingly tough conditions for Bitcoin to thrive, as its status as an exotic growth asset is replaced by "only use if there's nothing else growing". But the same can’t be said for other projects in the space.

The shift in market sentiment from growth to value, is a boon for projects that have built products and services with value baked into their blockchains. Ethereum, Cardano and Polkadot and even Binance Coin are increasingly diverging from Bitcoin's performance as their ecosystems start to mature and value starts to be generated from within the projects rather than from speculation by those on the outside. 

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