Market Wrap: Bitcoin Takes Investors on a Wild Ride

Bitcoin and ether started the day higher before falling during Tuesday afternoon trading. As traditionally bearish September comes to a close, cryptocurrency markets are hoping the record of bullish Octobers continues. Since 2014, October has been second only to February as the best month for average daily returns. Conversely, the worst month for average daily returns over the same time frame has been September.

Bitcoin’s (BTC) price rose 2% early on strong volume before reversing course. Prices began their push higher in overnight activity, between 23:00 UTC (7:00 p.m. ET) and 05:00 UTC (1:00 a.m. ET), before falling. The price of the largest cryptocurrency by market capitalization at one point breached the psychologically important $20,000 mark, but it is now resting under $19,100, about where it started the week.

Ether (ETH) declined 1%, also on higher than average volume. Ether maintains a strong correlation to BTC and displayed similar trading behavior, rising sharply between 23:00 UTC and 05:00 UTC, before declining.

The CoinDesk Market Index (CMI), a broad-based market index that measures performance across a basket of cryptocurrencies, rose 3.6% on the day.

Economic Calendar: Month-over-month durable goods orders decreased 0.2% in August versus expectations for a 0.9% decline. The narrower than expected decrease underlined the resiliency of the economy, despite recent rate hikes. The delayed impact of rate hikes may have accounted for the encouraging number.

New home sales in the U.S. jumped by 29% in August, reaching a five- month high of 685,000, and exceeding the consensus estimate of 500,000. Home prices, however, rose by 13.9%, down from 16% the prior month, and the lowest increase since February 2021.

For a Federal Reserve wrestling with the dilemma of taming inflation without stalling the economy too severely, the positive data could encourage the U.S. central bank to continue the current, hawkish pace of interest rate hikes.

Markets currently are pricing in an additional 75 basis point rate hike in November when the Federal Open Market Committee next meets.

Bonds: U.S. bond markets have also been showing signs of stress. Specifically, Bloomberg’s United States Government Liquidity Index has reached its worst level since 2010. “The U.S. bond market is in a very dark, bad place right now,” stated Jim Bianco of Bianco Research.

Illiquid fixed income markets could have a negative impact on other markets, equities and crypto currencies included.

U.S. Equities: Traditional equities were mixed following Monday’s decline. The Dow Jones Industrial Average (DJIA) and tech-heavy Nasdaq composite fell 0.4% and 0.2% respectively, while the S&P 500 rose 0.3%

Commodities: In energy markets, WTI crude rose 2.3% while European Brent crude increased by 2.7%. Natural gas fell 3%. Safe-haven asset gold rose 0.3%, while copper prices declined 0.3%.

Bitcoin continues to tango between bullish and bearish activity

Bitcoin and ether spent much of early Tuesday (UTC) in the green before falling. Investors apparently decided two unexpectedly strong economic indicators released just before the U.S. trading day started weren’t enough to outweigh deeper concerns about inflation and the global economy.

Bitcoin was recently trading just below $18,900, off about 1.7% over the past 24 hours. Ether was changing hands just above $1,300, off about 1.5% for the same period.

Both cryptos surged in Tuesday’s wee hours (UTC) and held through much of the day as investors embraced surprisingly good August durable goods orders and housing starts data that raised hopes the Fed could pause its current diet of steep interest rate hikes. Bitcoin’s tendency to spike about this time of the year may have also figured in Tuesday’s price increase. The rise was also surprising given cryptos’ propensity to decline with good economic news suggesting inflation is not under control.

Still, the probability the Federal Reserve will increase rates by 75 basis points declined to 66% from 73%, according to the CME FedWatch tool. The Fed has made stemming inflation its priority.

Meanwhile, at an event hosted by the French central bank Tuesday, Federal Reserve Chair Jerome Powell said regulation of decentralized finance (DeFi) needs to be done “carefully and thoughtfully,” given its limited impact on the real economy. “The DeFi winter … didn’t have significant effects on the banking system and broader financial stability” due to the lack of links between them, Powell told a panel.

Despite the significant role the Ethereum blockchain plays in DeFi, ether traders showed little immediate reaction to Powell’s comments.

Will bitcoin continue its history of strong Octobers?

Since 2014, October has historically been the second-best performing month for bitcoin (average daily returns), while September has historically been the worst.

Traders looking to take advantage of this trend may have been shorting BTC throughout September, while going long BTC near the end of September and into October.

Technically, BTC returned all its prior evening and early morning gains during the afternoon. Trading volume during the 16:00 UTC (12:00 p.m. ET) exceeded its 20-day moving average, indicating conviction behind the downward move.

As BTC rose into overbought territory on its hourly chart, prices suddenly reversed course and now appear to be oversold.

BTC’s daily chart shows that it was unable to maintain Tuesday’s daily high of $20,381, which sits slightly above its average price over the most recent 20 trading days.

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk Market Index (CMI) is a broad-based index designed to measure the market capitalization weighted performance of the digital asset market subject to minimum trading and exchange eligibility requirements.