The tariff conflict between the US and China, which had been a major source of uncertainty in the market throughout October, has been resolved. Despite this positive development, Bitcoin failed to rally last week, posting a weekly decline of 1.72%.
The crypto market’s lack of reaction to clear positive news suggests that the upward momentum may weaken significantly. Ethereum is down 2.55% for the week, while Solana (SOL) is also down 4.76% over the same period.
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Geopolitical interests and the downturn in cryptocurrencies
The key period for crypto investors was between October 29th and 30th. The period included a high-stakes summit with the Federal Reserve and U.S. President Donald Trump and Chinese President Xi Jinping.
China has acquiesced to three key US demands, including a one-year postponement of rare earth export restrictions and the resumption of imports of US soybeans. As a result, the U.S.-China summit meeting yielded fairly clear content. In return, the US agreed to reduce its overall tariffs on China from 57% to 47%. The two leaders also agreed to mutual visits next year.
This resolution was immediately reflected in traditional safe assets. For example, gold prices, which soared after the tariff dispute escalated on October 10, had retreated to pre-escalation levels of around $3,990 an ounce by the end of the week.
The Nasdaq 100 index, a key risk asset index, has risen about 2.7% from its October 10 low. The rise was supported by the resolution of geopolitical risks and strong corporate profits.
However, the price of Bitcoin has fallen significantly. As of Sunday evening (UTC), Bitcoin was trading at nearly $110,000, down 9.4% from its price on October 10th.
On-chain analysts blame Bitcoin’s weakness on the loss of momentum caused by the October 10 crash. The event liquidated about $19 billion of leverage from the derivatives market, depleting a key driver of the recent rally.
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Powell’s warning invalidates trade ceasefire
Another important event was the Fed’s interest rate announcement on October 29th. The Federal Reserve’s FOMC has announced that it will cut its benchmark interest rate by 0.25 percentage points and end quantitative tightening (QT) on December 1st. This was basically good news for risk assets.
But Chairman Jerome Powell suggested the Fed might not cut rates at the December FOMC meeting, creating new uncertainty. This is the first time Mr. Powell has given such specific opinions regarding next month’s decision.
Before the FOMC, the CME FedWatch tool indicated a 91.5% chance of a December rate cut. Following Powell’s comments, this probability plummeted to 55%, and Bitcoin’s price immediately fell by 2%. FedWatch’s odds have since recovered to 70.4% as of Sunday, but the outlook remains extremely uncertain.
Fed officials support Powell. New uncertainties loom
Since then, multiple Fed officials have publicly supported Powell’s position. Atlanta Fed President Rafael Bostic said Powell’s message accurately conveyed the wide range of views within the Fed, and expressed appreciation for the Fed’s willingness to hint at the possibility of keeping interest rates on hold in December.
In summary, the US-China summit succeeded in reducing geopolitical uncertainty in October, but the Fed has introduced new uncertainty about the future of monetary easing.
As a result, macroeconomic indicators such as inflation and employment data will regain significant influence this week. The altcoin season index, which measures uncertainty in the crypto market, hit 41 on Sunday, its lowest level since the second week of August.
The next week: Lots of macro data
Employment statistics are scheduled to be released this week, including the JOLT jobs and turnover survey on Tuesday, the ADP nonfarm employment report on Wednesday, unemployment claims on Thursday, and the Michigan Inflation Expectations Index on Friday. If the employment data is better than expected, the probability that interest rates will be left unchanged in December will increase.
Public statements from various Fed officials, including Governor Lisa D. Cook (Monday), Vice Chair Michelle W. Bowman (Tuesday), Governor Michael S. Barr and Governor Christopher J. Waller (Thursday), are also expected to move markets.
