USD/JPY: From Return on Capital to Its Safety
The Japanese yen performed better last week than its "colleagues", the euro and the British pound. As most experts expected, the bulls tried to renew the April 28 high at 131.24. However, having risen only 10 pips higher to 131.34, they gave up, and the USD/JPY pair flew down, finding support only at 127.51. Undoubtedly, the current volatility of the pair is impressive: the weekly trading range was 383 points. This is despite the fact that it hovered around 150 points on average in the Q4 2021 - the Q1 2022. The finish of the last week took place in the central zone of the indicated range, at the level of 129.30.
Barring volatility during the coronavirus pandemic, the USD/JPY drop on Thursday May 12 was the biggest one-day swing since 2010. The strengthening of the Japanese currency, according to a number of experts, was due to the increased craving of investors for the most risk-free assets. Up to this point, the dollar has risen on the back of rising interest rates and higher yields on 10-year US Treasury bills. However, if investors continue to prefer capital preservation over returns, USD/JPY will continue to fall.
The yen was also strengthened by the expectation of changes in the policy of the Bank of Japan. Many investors, especially foreign ones, are expecting that, despite the regulator's assurances of commitment to an ultra-soft monetary policy, it may still go for an increase in interest rates. Moreover, there have already been such precedents, albeit in the opposite direction. Markets remember 2016, when the head of the Central Bank, Haruhiko Kuroda, first denied the possibility of introducing negative rates categorically, and then suddenly decided to take such a step.
At the moment, experts' forecasts look as uncertain as the pair's quotes. 40% vote for its growth, 50% are in favor of the fall of the pair and the remaining 10% have taken a neutral position. There is a similar discord among the indicators on D1. As for trend indicators, 65% are green, 35% are red. The oscillators have 40% on the green side, 25% on the red side, and 35% hve turned neutral gray. The nearest support is located at 128.60, followed by zones and levels at 128.00, 127.50, 127.00, 126.30-126.75, 126.00 and 125.00. The goal of the bulls is to rise above the 130.00 horizon and renew the May 05 high at 131.34. The January 1, 2002 high of 135.19 is seen as the final goal.
Data on Japan's GDP for the Q1 of this year will be published next week, on Wednesday, May 18. It is expected that this indicator will decrease by 0.4% from the previous value of 1.1%.
CRYPTOCURRENCIES: "$1 Million per BTC, or Zero"
If you read the headlines of the last week, you get the strong impression that the cryptocurrencies have only a few months left to live, if not days. “Crypto Market Massacre”, “Bitcoin Requiem”, “Crypto Bubble Burst” are just some of them. But is it all that scary?
Indeed, the market suffers very serious losses. Bitcoin has lost about 45% of its value since the end of March, hitting $26,580 on May 12. Most other coins feel even worse. As has been said many times, the cause of panic is the global drop in investor risk appetite. The crypto market only follows in the wake of the stock market: the correlation between digital asset quotes and stock indices S&P500, Dow Jones and Nasdaq is at its maximum.
The tightening of the monetary policy of the US Federal Reserve, new outbreaks of coronavirus in China, fears about the future of the EU economy: all this has led investors to prefer the dollar over risky assets. An additional driver is rising yields on 10-year US Treasury bonds. This figure has almost doubled since March and rose over 3%: to the highest level since 2018, exceeding the returns of most sectors of the US stock market.
In addition to global factors, the collapse of the third largest stablecoin in terms of capitalization, UST, put additional pressure on the crypto market. It is believed that stablecoins serve to facilitate investment transactions and should be pegged to the real dollar in a ratio of 1:1. The price of UST immediately collapsed to $0.64, casting doubt on the ability of the Terra team to maintain its rate. Against the backdrop of problems with UST, the native Terra LUNA token also went down, losing more than 90% of its price. It cost about $120 back in April, but you can buy it for $5 now. And here it must be borne in mind that the Terra blockchain protocol is a fairly large project that was in the TOP-10 in terms of market capitalization.
The fate of the centralized stablecoin Tether with a capitalization of $82 billion causes some concern as well. An audit of this project conducted in 2021 showed that instead of dollars, which should provide a reserve for the project, there are a lot of securities in the accounts. Against this background, the sale of USDT has intensified: its capitalization has decreased by $1.4 billion in recent days.
The total capitalization of the crypto market continues to fall. At the time of writing this review, Friday evening, May 13, it is at $1.290 trillion ($1.657 trillion a week ago). The Crypto Fear & Greed Index has fallen from 22 to 10 points out of 100, firmly entrenched in the Extreme Fear zone. The BTC/USD pair, after a slight upward rebound, is trading around $30.150. The low of the week, as already mentioned, was fixed at $26.580. The last time the pair was so low was in December 2020.
The number of "whales" among bitcoin holders, whose capital exceeds the bar of 1000 BTC, is rapidly declining. This figure has already reached its lows since the beginning of the year. At the same time, the volume of cryptocurrency on the exchanges, on the contrary, is at its maximum over the past three months. According to Glassnode analysts, the average volume of coin inflows to centralized exchanges is now hovering around 1755 BTC.
Galaxy Digital founder Mike Novogratz expressed doubt that the bulls will be able to defend the $30,000 support levels for bitcoin and $2,000 for ethereum. “Until we reach a new equilibrium,” he wrote, “digital assets will continue to trade in close correlation with the Nasdaq. Intuition tells us that there will still be a drawdown ahead, and this will occur in a very unstable, volatile and complex market.” Mike Novogratz warned that the negative scenario could materialize if the Nasdaq index falls below 11,000 (it hit 11,688 on May 12).
Gold apologist, billionaire Peter Schiff, predicted the main cryptocurrency to collapse below $10,000. And another billionaire veteran of the bitcoin industry, 2020 US presidential candidate Brock Pierce said in an interview with Fox Business that it can be very successful, but it can also fail. “Bitcoin could drop to zero. Here is the binary result. Either there will be $1 million per BTC, or zero,” he said.
Pierce believes that the current “cryptocurrency landscape” is very similar to the history of the tech companies' bubble. “The situation is very similar to 1999. The market is now in the same phase. So what happened then? After the dot-com bubble, eBay, Amazon and other interesting companies appeared, but a lot of businesses went bankrupt. But this does not mean that digital assets are unrealistic and will not play an important role in our collective future,” the billionaire said. Pierce admitted that he diversified his portfolio, primarily through Ethereum. He also placed a “nine zeros” bet on EOS, converting all of his Block.one shares into cryptocurrency.
Unlike other influencers, ARK Invest CEO Katherine Wood continues to express sustained optimism and believes that the growing correlation between cryptocurrencies and traditional assets indicates that the bearish trend will end soon. The businesswoman opined that the depreciation of bitcoin along with the traditional market is a temporary phenomenon: “Cryptocurrency is a new asset class that should not follow the Nasdaq, but that is what is happening. We are currently in a bearish trend where all assets are moving in the same way and we are seeing one market after another capitulate, but cryptocurrencies may be close to completing it.”
The head of ARK Invest believes that the cryptocurrency market will grow exponentially as traditional assets collapse. “The current recession in the stock and bond markets, commodities and cryptocurrency markets is causing negative sentiment among investors. But look at our research… I can’t even tell you how confident we are that our products will change the world and are already on an exponential growth trajectory.” According to Wood, blockchain is in a technology sector that will grow more than 20 times in the next seven to eight years.
Another hope for investors is that bitcoin is already halfway to its next halving. It happened at block number 735,000 on May 05. This event occurs every 210 thousand blocks, or approximately once every four years, with a little less than 105 thousand blocks left until the next one. The halving date can be predicted to within a couple of days, because the block production time fluctuates around 10 minutes. The previous halving took place on May 11, 2020, and the next one will take place approximately in April 2024.
Halving cycles are one of the main mechanisms of the bitcoin network, which involves halving the BTC reward for miners. Accordingly, the issue of bitcoins is also halved, since miners' rewards are the only source of issuing new coins. From the inception of bitcoin to the first halving, miners were rewarded with 50 BTC per block. Then the amount in bitcoins was reduced to 25 BTC, and in the next cycle to 12.5 BTC. Currently, miners receive 6.25 BTC for mining a block.
And if miners suffer losses due to halving, investors, on the contrary, earn. As observations show, before the first halving, BTC cost about $127, before the second, its price rose to $758, and before the third, to $10,943. It remains to wait for not so long, less than two years, to find out whether there will be a similar explosive rise in the price of BTC in 2024.
NordFX Analytical Group
Notice: These materials should not be deemed a recommendation for investment or guidance for working on financial markets: they are for informative purposes only. Trading on financial markets is risky and can lead to a loss of money deposited.
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