How crypto assets are performing during the current dollar strength phase
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Conventional thinking holds that assets such as cryptocurrencies fall in value when the dollar strengthens. But is this really the case?
The Federal Reserve raised interest rates by 75 basis points for the third week in a row this week, as most experts had predicted. The purpose of raising borrowing costs is to make money a little more expensive and thus cool down a hot economy, as consumer prices have been rising at a rate not seen since the fourth season of Diff’rent Strokes for several months.
In words that crypto enthusiasts might understand, Remember how everyone bought UST because the Anchor protocol was paying almost 20% APY back in April? Higher interest rates increase the demand for dollars. After a rise of about 20 percent last year, the US dollar index, which compares the dollar to a basket of six foreign currencies, is currently at a 20-year high. The price of Bitcoin (BTC) has fallen a whopping 58% during that time.
On Friday’s episode of CoinDesk TV’s “First Mover,” Mark Conners, director of research at 3IQ, said, “The strength of the dollar is a one-sided and powerful force.” The phrase “tsunami” is thrown around a lot, but it really, accurately describes what happens during a strong dollar. Simply put, it drives other funds out of currencies.
However, it is important to note that this should not be extrapolated. After all, compared to other asset classes, cryptocurrencies are still in their infancy. It has its quirks, and prices fluctuate for reasons other than, say, the strength of the dollar.
For example, in November 2021, Bitcoin hit an all-time high of around $69,000, more than quadrupling the value from the previous year. The dollar index rose from about 92.7 to 95 during that time. In addition, the market’s view of risk often seems to be reflected in price movements. The risk factor of cryptocurrencies is still very high. Despite this, cryptocurrency has recently performed like some traditional assets, esp.
The stock market suffered after the Bureau of Labor Statistics released August’s Consumer Price Index (CPI) on September 13, showing an 8.3% increase from a year earlier (30 basis points higher than expected). For example, the S&P 500 fell 6.2% in the week following the announcement.
Crypto market trends
But when we look at individual industries, some fared better than others. For example, the financial position decreased by 5%. (banks like higher interest rates in the long run because they ultimately benefit their balance sheets). On the other hand, real estate stocks fell 9.8%, as higher interest rates make it more difficult to take advantage of mortgages and raise the cap rates on commercial buildings.
In the week following the release of CPI data, cryptocurrencies fared significantly worse than stocks in general. During those seven days, the CoinDesk Market Index (CMI), a cap-weighted index of the 148 largest cryptocurrencies, fell 13.5 percent. We see sector-specific variations in this area as well. The CoinDesk Smart Contract Platform Index (SMT), which includes cryptocurrencies such as ether (ETH), Cardano’s ADA and Solana’s SOL, fell 19.8 percent.
While other index assets also declined as a result of the selling, a significant percentage of the decline was undoubtedly due to the collapse following the ether merger and not just the general state of the market. As this continued, the CoinDesk Culture & Entertainment Index (CNE), which includes many NFT-related and metaverse coins, including ApeCoin’s APE, Decentraland’s MANA and The Sandbox’s SAND, fell “only” 6.9%, outperforming four equity sectors. .
Jodie Gunzberg, CEO of CoinDesk Indices, said on Thursday’s episode of “First Mover” that “high inflation, rising interest rates and a strong dollar, yes, it’s putting downward pressure on all digital assets, but it’s not equal.” Cryptocurrencies in the CoinDesk Culture & Entertainment index didn’t suffer as much as others because they are “not as financially sensitive as DeFi or currencies or smart contract platforms, which are just much more closely related to financial markets.” cryptocurrencies.
According to Gunzberg, this action follows a well-known pattern in stocks. He noted, “It’s not much different from the defensive sectors we’re seeing again in the S&P 500.” “Activities such as leisure, fun and games have more defensive qualities. Then there are others in some more sensitive sectors, such as real estate.”
When traders think about cryptocurrencies by sector, they can develop more complex trading strategies for environments such as rising interest rates.
You can develop long-term strategies, short-term strategies, or strategies that favor specific industries, such as culture and entertainment or the digitalization market. Smart contract platforms, which suffer severely in the current economic climate, may then be underweight.
The market is currently preparing for a new 75 basis point rate hike in November. As of Friday afternoon, traders were estimating a 71.7 percent chance the U.S. Federal Reserve would raise interest rates by three-quarters of a percent to a range of 3.75 percent to 4 percent, according to CME’s FedWatch Tool. As they say, it depends on the data, and a lot can happen in the next month.
P2E gaming industry outlook
Today, cryptocurrency enthusiasts have a new option for rapid growth in the form of the Tamadoge ecosystem. The idea is similar to Tamagotchi in that users can buy a pet, feed it, and then battle with it once it’s grown. Being a play-to-ear (P2E) platform, players can earn money while having fun and climb the Leaderboards by collecting Doge Points. TAMA is a meme coin with a utility that is used to discover all the special features of the platform.
In addition to this, the release of augmented reality software (AR application) in the last quarter of 2023 has a lot to look forward to. Being able to be close to your pet while using the app makes player engagement much easier. to maintain their well-being.
As a result, a large number of people are turning to TAMA for investment because of the excitement it has generated as a result of its current success. In just a few weeks, Tamadoge raised over $19 million, which is undeniably a success every investor wants to be a part of.
Tamadoge will have its ICO (IDO) on OKX. TAMA will list at $0.03 on September 27th.
Investors should do their own research and consider all factors before making a decision with a potentially high premium. TAMA’s entire paper and roadmap can be read here.
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