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Short-Term Downside Risks for Bitcoin and Ethereum; Euro Area Inflation Figures to Be Released at 11:00 CET

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March 31, 2023 – Most cryptocurrencies, including Bitcoin (BTC) and Ethereum (ETD), face downside risks in the coming hours, according to ATTMO, a weather-inspired crypto AI forecasting tool. 

Binance (BNB), Polkadot (DOT) and Chainlink (LINK) buck the negative trend being in a slightly bullish market with an upside trend, ATTMO predicts.

Cryptocurrencies have had a stellar first quarter, with Bitcoin up 68 percent, Ethereum up 49 percent, XRP up 57 percent and Cardano up 56 percent since the beginning of the year, so a market correction looms.  

ATTMO data shows that over a one-week horizon, a market correction is likely for both major cryptocurrencies –  Bitcoin and Ethereum. There is also a downside risk for Litecoin (LTC), while Chainlink (LINK) has upside potential.

Bitcoin drops after a short stint above $29,000

Yesterday, the price of Bitcoin dropped 1.9 percent after it briefly traded above the 29,000 US dollar threshold – a nine-month high. Bitcoin fell on profit-taking and comments made by US Senator Elizabeth Warren. She announced her re-election campaign would be based on stronger bank regulations and the building up of an anti-crypto army on @ewarren.

”The Trump admin & the Fed under Powell weakened regulations on multibillion-dollar banks. Executives then loaded up on risk to boost profits and Silicon Valley Bank imploded. President Biden is right to call on financial watchdogs to immediately step up with stronger bank rules,” the Democratic senator tweeted.

The second largest cryptocurrency, Ethereum, edged 0.2 percent higher. Among smaller currencies, XRP added 1.9 percent as investors expect an imminent ruling from the US Securities Exchange Commission (SEC) on whether the cryptocurrency should be considered a security (under the strict SEC regulations) or a commodity (under the less stringent jurisdiction of the Commodity Futures Trading Commission (CFTC)).

Binance added 0.5 percent, declining an FT report about alleged business activities in China. Outflows from the world’s largest crypto exchange are reported to exceed 2.2 billion dollars since the US Commodity Futures Trading Commission (CFTC) sued Binance earlier this week. The US regulator claims Binance offers unregistered securities.

Inflation figures released at 11:00

Investors will focus on the latest euro area inflation figures when these are released at 11:00 CET. Year-on-year, the euro area’s March inflation is set to slow by 7.1 percent, according to the analyst consensus. Core inflation is, however, seen edging higher to 5.7 percent year-on-year. These figures will indicate whether the European Central Bank (ECB) will continue to raise its key rate at its upcoming meeting on May 4. 

Last week, the ECB’s head Christine Lagarde reiterated that further rate hikes were looming if the inflation rates do not slow. The euro area’s inflation reached 8.5 percent in February, far above the ECB’s 2 percent target. Another 50-basis point rate hike is priced in by the market ahead of the ECB’s meeting.

Critics argue that continued rate hike will have a negative impact on the European economies, which reel from the ongoing uncertainty in the banking sector. Some analysts fear additional bank failures if rates keep rising. Rising interest rates make riskier assets such as cryptocurrencies less attractive to hold, as investors can hold less risky assets such as bonds with a higher return.

Overseas, the release of the US personal consumption expenditures price index (PCE) on Friday will also indicate whether the inflationary pressure continues. The PCE captures inflation across a wider range of consumer expenses than traditional inflation (CPI) data. Analysts expect the PCE to edge lower to 5.3 percent in February, compared to 5.4 percent the previous month.

”The Fed is nearer to the end of its tightening cycle compared to the ECB,” SEB wrote in a market comment.

These forecasts are not trading advice; they are only decision-support tools. They do not include information that is specific to the user; in particular, they do not account for their personal risk appetite or market assessment.

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