Slipping Equities, Poor Macro Outlook Weighs on Crypto Prices

After more disappointing inflation data and deteriorating earnings estimates, equities are starting to lose momentum and reverse early gains. The bleak picture is not doing crypto any favors, analysts said. 

Short bitcoin funds saw a bounce last week with $10 million in inflows, according to data from CoinShares. Crypto products as a whole only lost $2 million to outflows last week, but US-based investment products shed $14 million, suggesting macro data and Federal Reserve expectations are weighing heavily on sentiment, James Butterfill, head of research at CoinShares said. 

Bitcoin (BTC) is down about 3% over the past five days while ether (ETH) has remained virtually flat. Both are still up roughly 40% year-to-date, though, and other analysts are hesitant to call for an investor attitude adjustment just yet. 

“This drop does not feel like a sentiment shift, more like a technical adjustment,” Noelle Acheson, author of Crypto is Macro Now and former head of market insights at Genesis, wrote in a note. “Call activity seems to be concentrated around the $28,000-30,000 strikes, signaling expectations of further increases.”

Higher-than-expected inflation numbers moved the probability of the Fed hiking at an increased pace in March higher, putting pressure on markets broadly, Acheson said. She is calling for a 50 basis point increase, noting the general expectations, as measured by CME Group, are leaning too optimistic. 

Markets are currently only pricing in about a 26% chance of a 50 basis point hike, leaning in favor of another 25 basis point bump. 

The S&P 500 and Nasdaq indexes have shed 2.6% and 3.2% in the past five trading days, cutting into their year-to-date gains but still remaining in the green for 2023, so far. Earnings expectations are the driving force behind the selloff, Nicolas Colas, co-founder of Data Trek Research, said Monday. 

The fourth quarter of 2022 S&P 500 earnings are set to post the first year over year negative comparables since the start of the pandemic, Colas noted.  

“Q1/Q2 2023 will all but certainly continue this trend,” he added. “This means margins will remain under pressure until at least Q3 2023. We are in an ‘earnings recession.’”

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